Mortgage Expert Mike Smalley blogs about interest rates, economic news, and the mortgage market in Florida

What’s Ahead For Mortgage Rates This Week : April 2, 2012

Apr02
2012 Written by Mike Smalley

Jobs growth can influence mortgage ratesMortgage markets improved last week on renewed concerns of a European debt default, and Federal Reserve rhetoric.

Conforming mortgage rates dropped on the news, one week after posting a 5-month high.

A major strike in Spain and growing unrest in Italy, both in opposition to recent austerity measures, have re-ignited fears that the Eurozone may lapse into recession.

These are similar beginnings as with last year’s events in Greece. The difference is that Spain and Italy represent a larger share of the Eurozone’s overall economy, and a debt default could trigger faster contagion.

Mortgage markets gained on the news in a bid of safe haven buying.

Bonds also gained as Federal Reserve Chairman Ben Bernanke clarified his position on the economy with respect to Fed-led stimulus. Summarized, he said that the Federal Reserve is inclined to keep its accommodative policies in place until the labor market is more fully recovered.

In addition, Chairman Bernanke alluded to making direct mortgage market intervention if U.S. economic growth were to stall in the near future.

The news helped push mortgage rates back below 4.000 percent last week, according to Freddie Mac’s weekly Primary Mortgage Market Survey. The average 30-year fixed rate mortgage rate fell to 3.99% for applicants willing to pay an accompanying 0.7 discount plus closing costs.

1 discount point is equal to one percent of your loan size.

This week’s mortgage market activity will be holiday-shortened so expect volatility — especially surrounding Friday’s March Non-Farm Payrolls report.

More commonly called “the jobs report”, Non-Farm Payrolls details national employment rates and gains or losses in the workforce size. Lately, what’s been good for jobs has been good for the economy so if the actual number of jobs created exceeds the 200,000 projected by economists, or if the Unemployment Rate drops off its current 8.3% reading, look for mortgage rates to rise.

In general, economic expansion is bad for mortgage rates throughout the nation.

Other market-moving news this week includes Tuesday’s FOMC Minutes release and Thursday Jobless Claims data.  

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Mortgage Rates Fall Back Below 4%

Mar30
2012 Written by Mike Smalley

Freddie Mac Weekly Mortgage Rates

After a brief run-up two weeks ago, mortgage rates are back below 4 percent. It’s good news for home buyers and mortgage rate shoppers because with lower mortgage rates come lower mortgage payments.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, the national, average 30-year fixed rate mortgage rate fell to 3.99 percent this week from last week’s 4.08 percent.

Last week had marked the first time since December 2011 that the benchmark rate crossed north of 4 percent — a span of 16 weeks.

And, it wasn’t just rates that got cheaper this week — closing costs dropped, too.

Freddie Mac’s survey showed that the average number of discount points to accompany a 30-year fixed rate mortgage fell one-tenth of a percent this week to 0.7, where one discount point is equal to one percent of your loan size.

As a real-life example, a $200,000 mortgage with an accompanying 0.7 discount points would be subject to an additional $1,400 one-time closing cost. Last week, that cost was $1,600.

Note, though, that these are average mortgage rates for the nation. On a local level, rates may be higher or lower, and so may the accompanying number of discount points.

For example, in this week’s Freddie Mac survey, each U.S. region boasts its own “average rate” :

  • Northeast Region : 4.00% with 0.7 discount points
  • West Region : 3.94% with 0.9 discount points
  • Southeast Region : 4.01% with 0.8 discount points
  • North Central Region : 3.99% with 0.6 discount points
  • Southwest Region : 4.02% with 0.8 discount points

These rates are each well below the average rates of a year ago when the average 30-year fixed rate mortgage was 4.86%. 

Low mortgage rates can’t last forever so if you’ve been wondering whether now is a good time to buy a home or refinance one; or whether rising rates will harm your monthly budget, the answer may be yes. A weak economy held mortgage rates low last year. An improving economy should push rates higher this year.

Talk to your loan officer and review your home loan options. Looking ahead to spring and summer, mortgage rates appear poised to rise.

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Case-Shiller Shows Uneven Recovery For U.S. Housing

Mar29
2012 Written by Mike Smalley

Case-Shiller Home Value Changes

Recent data suggests that the U.S. housing market is in recovery. However, the data also shows this to be an uneven recovery.

According to the monthly S&P/Case-Shiller Index, for example, home values rose in three of 20 tracked markets between December 2011 and January 2012. 17 tracked markets showed home prices still in decline.

It’s easy to point to the Case-Shiller Index as evidence that the housing market has yet to bottom, but we have to consider the Case-Shiller Index’s shortcomings — specifically in a recovering economy.

For example, the Case-Shiller Index is based on changes in home prices of a single home, through successive sales. This means that to calculate its home price index, the Case-Shiller searches for sales of the same home over a period of time and calculates the difference in contract price. 

This methodology can distort the home price tracker downward during times of weak economy because there is no distinction made for homes sold in foreclosure or as a short sale.

35% of all homes sold in January were “distressed”, says the National Association of REALTORS®.

Another distortion in the Case-Shiller Index is that the model neglects all home types that are not of type “single-family residence”. This means that multi-unit homes and condominiums are excluded from the Case-Shiller Index model.

In some markets, such as Chicago and New York City, condominiums account for a large percentage of overall sales. 

Lastly, the Case-Shiller Index is published with a “lag”, which renders it useless to buyers and sellers in search of real-time, relevant data. The most recent Case-Shiller Index is published with a 60-day delay, and accounts for home purchase contracts written between October and December 2011.

Since October, the U.S. economy has added more than 1 million jobs and the economy has moved into “moderate expansion”, according to the Federal Reserve. Data that’s two seasons old does little to help us today.

Making sound real estate decisions is about having timely, relevant data at-hand when it’s needed. The Case-Shiller Index fails in that respect. It’s good for highlighting the U.S. housing market on the whole, as it existed in the past. For real-time market data, though, you’ll want to talk with an active real estate agent.

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Pending Home Sales Index Remains Strong Into Spring

Mar28
2012 Written by Mike Smalley

Pending Home Sales IndexThe housing market took a step back in February, but remains near post-recession highs.

According to data from the National Association of REALTORS®, February’s Pending Home Sales Index slipped 0.5 percent from the month prior, to 96.5.

The Pending Home Sales Index is a monthly report which measures the number of homes under contract to sell, but not yet sold, nationwide.

The index is benchmarked to a value of 100, the average level of home contract activity in 2001, the first year that pending home sales data was analyzed. It also happened to be a year of historically-high levels of home contract activity. Therefore, a Pending Home Sales Index reading of 100 suggests a strong housing market nationwide.

The index has read north of 90 since October 2011.

On a regional basis, February’s Pending Home Sales Index varied :

  • Northeast Region: -0.5 percent from January 2012
  • Midwest Region : +5.7 percent from January 2012
  • South Region : -3.3 percent from January 2012
  • West Region : -2.6 percent from January 2012

Mild weather may have helped the Midwest Region last month but even regional data can only tell us so much. Like everything in real estate, housing data must be local to be relevant.

Throughout the South Region, for example, the area in which contract activity fell most on a monthly basis, there are states which performed better than the regional average, and states which performed worse. Furthermore, even within those states, there are some cities which over-performed, and others which underperformed.

It’s why we can’t put too much stock in national housing news. Buyers don’t buy nationally — they buy locally.

Today’s home buyers and sellers , therefore, should look beyond the national Pending Home Sales Index and into local market drivers. The Pending Home Sales Index can paint a broad picture of the U.S. housing market but for data that matters to you specifically, it’s not as widely helpful. 

To get relevant, timely local real estate data, talk to a real estate professional.

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New Home Sales Slip In February

Mar27
2012 Written by Mike Smalley

New Home SalesSales of “new homes” fell to the lowest levels in four months last month.

According to the Census Bureau’s monthly New Home Sales report, 313,000 new homes were sold in February 2012 on a seasonally-adjusted, annualized basis, representing a 1.6% drop from the month prior.

A “new home” is a home for which there has been no prior owner nor tenant.

At first glance, the data looks negative for the housing market; a suggestion that the well-publicized housing market recovery may be slowed. However, within February’s New Home Sales report are three important counter-statistics worth mentioning.

First, although annualized home sales volume slipped 5,000 units in February, this occurred as the number of homes for sale nationwide remained constant at 150,000. This is the fewest number of new homes for sale since at least 1993 — the first year that the Census Bureau tracked such data.

A small home supply promotes rising home values when buyer demand is rising and, in February, buyer demand held firm.

A second reason to remain optimistic on housing is that New Home Supply was 5.8 months in February. This means that, at the current pace of sales, the entire new home inventory will be “sold out” in 5.8 months.

Housing experts say that when home supplies fall below 6.0 months, it’s bullish for housing.

And, as a third reason to look past the New Home Sales headline figure, last month’s reporting Margin of Error was huge.

According to the government, the February New Home Sales data was published with a ±23.9% margin of error. This means that the actual New Home Sales sales volume may have dropped as much as -25.5%, or may have climbed by as much as +22.3%. 

Because the range of possible values includes both positive and negative numbers, the Census Bureau assigned its February data the “zero confidence” label.

It will be several months before February’s New Home Sales data is revised. Until then, buyers would do well to take cues from the real estate market-at-large which shows steady, gradual improvement. 

If your 2012 housing plans call for buying new construction, consider using February’s results as a window to “make a deal”. As the year progresses, great values in housing may be gone for good.

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What’s Ahead For Mortgage Rates This Week : March 26, 2012

Mar26
2012 Written by Mike Smalley

Housing Starts 2010-2012Mortgage markets carved out a wide range last week, eventually closing slightly worse. Mortgage-backed bonds sold off early in the week on rising investor sentiment. Then, they reversed higher on prepared remarks from Federal Reserve Chairman Ben Bernanke, which tempered Wall Street optimism.

When bonds prices rise, mortgage rates fall.

Conforming and FHA mortgage rates edged higher on the week, and remain at a 5-month high.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage is now 4.08% and the 15-year fixed rate mortgage is now 3.30%. Both loan types require an accompanying 0.8 discount points, plus a full set of closing costs.

1 discount point is equal to one percent of your loan size.

Last week’s conforming mortgage rates represent a sharp increase from the week prior when rates for the 30-year fixed rate mortgage and 15-year fixed rate mortgage averaged 3.92% and 3.16%, respectively.

If you’ve been shopping for a 30-year fixed rate mortgage, the interest rate increase added $9.22 to your monthly payment per $100,000 borrowed.

We can’t know in what direction mortgage rates will move this week, but we can be certain they’ll be volatile. Wall Street is suddenly on edge, unsure of whether the economy is improving as recent data suggests, or if the Federal Reserve is correct in that threats to growth persist.

The week’s data schedule is as follows :

  • Monday : Pending Home Sales Index
  • Tuesday : Consumer Confidence; Case-Shiller Home Price Index
  • Wednesday : Durable Goods
  • Thursday : Initial Jobless Claims; GDP
  • Friday : Personal Income and Outlays

In addition, there are 6 Federal Reserve speakers scheduled for the week, including Chairman Bernanke. Expect mortgage rates to change frequently throughout the week as Wall Street wrestles with data and rhetoric.

Although mortgage rates spiked last week, historically, they remain low. If you’re nervous that rates may rise more, consider locking something in.

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Building Permits On The Rise

Mar23
2012 Written by Mike Smalley

Building PermitsThe new construction housing market appears primed for growth this season.

According to the Census Bureau, the number of single-family building permits issued in February rose to 472,000 on a seasonally-adjusted, annual basis, marking the highest building permit tally since April 2010 — the last month of that year’s federal home buyer tax credit program.

Building permits are a pre-cursor to new home construction.

In 2011, from the date of permit-issuance to the date of “ground-breaking”, an average of 27 calendar days passed. February’s data, therefore, is a signal that the market for newly-built homes should be strong this year, an idea supported by the most recent homebuilder confidence survey.

As buyer foot traffic soars, homebuilders expect to make more sales in the next 6 months than at any time since the housing market’s collapse. Builder confidence is at a 5-year high.

Last month, however, single-family housing starts slipped.

As compared to January, February’s single-family housing starts fell by 50,000 units on a seasonally-adjusted, annualized basis. The 10% drop represents the largest one-month drop since February 2011. It’s a statistic that may suggest that this year’s results are simply seasonal.

For buyers of new construction, the news is mixed.

Rising permits and builder confidence may mean that homebuilders will be less willing to negotiate with today’s buyer on upgrades and/or home prices. However, as more new home supply is set to come online, excess housing stock could help keep home prices low. 

If you’re planning to buy new construction this year, be sure to ask your real estate agent about the local home supply, and how the market is currently trending. With mortgage rates low and the summer buying season approaching, you may find some of your best deals of the year available in just the next few weeks.

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Existing Home Sales Stay Strong; Spring Season Underway

Mar22
2012 Written by Mike Smalley

Existing Home Sales

The market for home resales stays strong.

Despite sparse home inventory, the National Association of REALTORS® reports that 4.59 million existing homes were sold in February on a seasonally-adjusted, annualized basis. An “existing home” is a home that cannot be classified as new construction.

Last month’s sales data represents a 9 percent improvement from the year prior.

There are now just 2.43 million homes for sale nationwide — a 19% reduction versus a year ago. The complete home inventory would “sell out” in 6.4 months at the current sales pace.

Some analysts believe that a 6-month home supply indicates a housing market in balance.

The real estate trade group’s report contained other noteworthy statistics, too :

  1. 32 percent of home sales were made to first-time buyers
  2. 33 percent of home sales were made with cash (i.e. no mortgage)
  3. 34 percent of home sales were of foreclosed homes or homes in short sale

In addition, nearly one-third of all home sales “failed” last month, the result of homes not appraising at the purchase price; or, the buyer’s inability to secure mortgage financing; or, insurmountable home inspection issues.

Even accounting for last month’s high contract failure rate,though,  the Existing Home Sales report still posted its second-highest reading since May 2010. For today’s home buyer, the data may be a “buy signal”.

As compared to last fall, home supplies are down and home sales are up. Basic economics tell us that home prices should start to rise shortly — if they haven’t already. After all, the Existing Home Sales data is 30 days old, reporting on February. It’s nearly April today.

The good news is that homes remain affordable. With conforming and FHA mortgage rates in the low-4 percent range, home affordability is at its highest in history. Home prices may rise this spring, but at least your mortgage payment should remain low.

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Buyer Foot Traffic Through New Construction Up Nearly Threefold Since 2009

Mar21
2012 Written by Mike Smalley

HMI 2000-2012

Home builder confidence in the newly-built, single-family housing market remains high.

In March, for the second consecutive month, the National Association of Homebuilders reports the Housing Market Index at 28 — a doubling of the reading from just 6 months ago and, along with last month, the highest HMI value since June 2007.

When home builder confidence reads 50 or better, it reflects favorable builder conditions in the single-family, new home market. Readings below 50 suggest unfavorable builder conditions.

The HMI itself is a composite reading. It’s the result of three separate surveys sent to home builders by the trade association. The NAHB asks builders to report on their current single-family home sales volume; their projected single-family home sales volume for the next 6 months; and, their current buyer “foot traffic”.

Approximately 400 surveys are returned each month. The results are compiled into the NAHB Housing Market Index.

In March, home builders provided mixed replies to the survey questions :

  • Current Single-Family Sales : 29 (-1 from February)
  • Projected Single-Family Sales : 36 (+2 from February)
  • Buyer Foot Traffic : 22 (Unchanged from February)

It’s noteworthy, despite slowing sales in March, that home builders expect a surge in new home sales over the next 6 months. The reasons for this are several and should be of interest to today’s home buyers.

First, the jobs market is heating up. The U.S. economy has added more than 1 net new million jobs over the last 6 months and that is increasing the pool of potential home buyers nationwide. 

Second, the housing market, in general, is improving. Home sales are brisk in many U.S. markets and home supplies are dropping. This creates pressure on home prices to rise.

And, third, low mortgage rates have helped pushed home affordability to all-time highs. More home buyers earning the national median income can afford a median-priced home than at any time in history. 

It’s all culminated in a monthly Buyer Foot Traffic reading which, at 22, is nearly triple the foot traffic reading from just three years ago. Home buyers are out in full-force, capitalizing on today’s buyer-friendly market.

If you’re looking to buy new construction in the second half of 2012, consider moving up your time frame. Market conditions are constantly changing, and may move out of your favor. As builder optimism increases, the price you pay for your new home may increase, too. 

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Loans For Underwater Homeowners : HARP 2.0 Now Available

Mar20
2012 Written by Mike Smalley

Making Home Affordabie

The new, revamped HARP program is now available nationwide. It was officially released Saturday, March 17, 2012 by Fannie Mae and Freddie Mac.

HARP is an acronym. It stands for Home Affordable Refinance Program. HARP is the conforming mortgage loan product meant for “underwater homeowners”. Under the HARP program, homeowners can get access to today’s low mortgage rates despite having little or no equity whatsoever.

HARP is expected to reach up to 6 million U.S. homeowners who would otherwise be unable to refinance.

HARP is not a new program. It was originally launched in 2009. However, the program’s first iteration reached fewer than 1 million U.S. households because loan risks were high for banks, and loan costs were high for consumers.

With HARP’s re-release — dubbed HARP 2.0 — the government removed many of HARP’s hurdles.

In order to qualify for HARP, homeowners must first meet 3 qualifying criteria. 

First, their current mortgage must be backed either Fannie Mae or Freddie Mac. Loans backed by the FHA or VA are ineligible, as are loans backed by private entities. This means jumbo loans and most loans from community banks cannot be refinanced via HARP.

  • To check if your loan is Fannie Mae-backed, click here.
  • To check if your loan is Freddie Mac-backed, click here.

The second qualification standard for HARP is that all loans to be refinanced must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009. Mortgages securitized on, or after, June 1, 2009 are HARP-ineligible.

There are no exceptions to this rule.

And, lastly, the third HARP qualification standard is that the existing mortgage must be accompanied by a strong repayment history. Homeowners must have made the last 6 mortgage payments on-time, and may not have had more than one 30-day late within the last 12 months.

If the above three qualifiers are met, HARP applicants will find mortgage guidelines lenient overall :

  • Refinancing into a fixed rate mortgage allows for unlimited loan-to-value
  • The standard 7-year “waiting period” after a foreclosure is waived in full
  • Except in rare cases, home appraisals aren’t required for HARP

Furthermore, HARP mortgage rates are on par with non-HARP rates. This means that HARP applicants get access to the same mortgage rates and loan fees as non-HARP applicants. There’s no “penalty” for using HARP.

To apply for HARP, check with your loan officer today.

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