Tuesday, June 26, 2012
Mortgage markets worsened last week as Greece tentatively formed a government and the Federal Reserve extended its Operation Twist program by $267 billion. Neither event, however, removed the uncertainty surrounding global markets. Mortgage rates ended the week slightly worse. Greece Elections Bring Few Resolutions Greece's new government is already in turmoil. It's Finance Minister has resigned and the nation must still agree adhere to stringent austerity measures in order to meet the terms of its IMF bailout. Early talk is that the new government will seek to revise the terms of its fiscal austerity, a move that would keep the nation-state -- and the whole of the European Union -- in fragile balance. Should Greece decide to remain on the austerity path, it will likely receive its aid and U.S. mortgage rates would respond by climbing. This is because economic uncertainty in Greece has helped to keep U.S. mortgage rates down since 2010. A reversal in policy would cause mortgage rates to reverse higher. Toward the end of last week, mortgage market teased this outcome. It was also clear from last week's action that Wall Street expected more than the Federal Reserve gave it after the most recent FOMC meeting. The nation's central banker extended Operation Twist through the end of the year, flattening the long end of the yield curve a bit. However, it did little else to prop up an economy that may be slowing. A bigger stimulus plan would have propped up stocks at the expense of bonds -- including mortgage-backed bonds. Instead, mortgage rates only rose slightly post-FOMC. 30-Year Fixed Mortgage Rates At 3.66% And Falling According to Freddie Mac, 30-year fixed rate mortgage rates fell 5 basis points to 3.66% last week, on average. This was the lowest recorded 30-year fixed rate mortgage rate on record as this year's Refinance Boom continues. The 15-year fixed rate mortgage rate also dropped, stopping at 2.95%, on average. This is 0.01 higher than the benchmark rate's all-time low -- a record set two weeks ago. This week, mortgage markets will continue to take cues from Europe, and from a bevy of U.S. economic data including the New Home Sales report and the release of the Pending Home Sales Index. Europe will also play a key role in affecting U.S. mortgage rates, as will China. In general, what's bad for the world's economy will be good for U.S. mortgage rates. Mortgage rates remain near all-time lows. If you're considering a home purchase or refinance, the timing looks good.
Thursday, June 21, 2012
Despite a slight uptick this week, mortgage rates are still pretty much rock bottom, and unarguably at ridiculously low levels. This has sparked yet another refinance boom, with mortgage application volume rising to its highest point since May 2009, per the latest data dump from the Mortgage Bankers Association. This is great news for existing homeowners with plenty of home equity looking to refinance to a lower rate. It's also working out nicely for those who don't have equity thanks to programs like HARP 2.0. All in all, it's a gift to these borrowers who are experiencing some serious monthly mortgage payment relief. But what about new and prospective home buyers? Are People Buying Because of the Low Rates? With rates this low, you have to wonder if it's all a big trap (whether intentional or not) to lure would-be buyers off the sidelines and into the game. If you've followed the housing market lately, at least in certain regions of the country, such as Los Angeles, homes are speeding into pending status just days after being listed. In fact, many are pending just one or two days after being listed. It's looking like a serious seller's market, though obviously a very unconventional one. The low rates have increased affordability so much that a new pool of buyers has essentially been created, which has facilitated both standard and short sales. Again, great news for those who have waited very patiently to sell their homes; many can finally do so! And perhaps even better for the housing/mortgage market, with seemingly bad loans being replaced with better ones. Heck, I'm even seeing a ton of flips that are actually selling for a tidy profit. I thought flips were dead? Reminder of the Homebuyer Tax Credit But it all seems reminiscent of the boost seen with the now infamous homebuyer tax credit. That "free money" created a short-lived, yet steep run-up in home prices as first-time home buyers came out in droves. Just a short time later, it became clear that those who purchased a home did so at a premium, and their tax credit was quickly eclipsed by a larger loss in home value. If you take a look at this home price chart, you'll see how the homebuyer tax credit stoked demand, but its effect was clearly fleeting. In fact, those who purchased before the tax credit expiration were actually worse off compared to those who bought later on. To bring it all together, home prices were pumped up as a result, similar to what we may be seeing with the record low mortgage rates. With rates so low, homeowners and their clever real estate agents probably feel they can list their homes for more than they could have six months ago. And the whole "it's never been a better time to buy" adage is back. Economy Still in Disarray The big problem is that the economy is still a huge mess, with the European crisis hanging over our heads, and domestic unemployment still far from unresolved. Then there are the millions of homes in the process of foreclosure, or knocking at its door. So is this artificial stimulus actually going to help the real estate market long-term, or is it just another quick fix with no staying power? My gut tells me that this recent run-up in prices and virtual 180 in consumer sentiment is bad news. Getting into a bidding war over a house just months after no one was interested seems really fishy. Additionally, all these calls of a "housing bottom" are concerning as well. You always have to wonder when every single media outlet (including your local news channel) is claiming that the worst is behind us. Of course, the low rates have led to lower mortgage payments, even with the recent home price increases factored in. So there's some serious power behind those rates. The question is will you be able to buy a home next year at an even better price with a similar (or even lower) interest rate?
Tuesday, June 19, 2012
Like most everything else in housing, the market for new construction homes is on the upswing. More buyers are looking at homes, and homes are getting sold. It's no wonder builders feel good about 2012 and beyond. Builder Confidence Doubles In 12 Months The National Association of Homebuilders released its monthly Housing Market Index for June. The index is a measure of homebuilder confidence. The report read 29 -- a one-tick increase from May and more than double the reading from one year ago. June's HMI marks the highest reading since May 2007. When the Housing Market Index reads 50 or better, it's indicative of favorable conditions for builders in the single-family, new-construction market. Readings below 50 indicate unfavorable conditions for builders. For some perspective, the index has been south of 50 since April 2006 -- a entire year before the peak of the U.S. housing market. Builders are on the street-level and see this business as good as anyone. For the past 12 months, they've been encouraged. Lots Of Interested Buyers The monthly NAHB Housing Market Index is not a "single survey" -- it's a composite one. The trade association sends three separate surveys to its members and roughly 400 builder-members respond. The survey asks questions meant to gauge the current and future health of the business. The questions cover current single-family home sales volume; projected single-family home sales volume for the next 6 months; and, current levels of buyer "foot traffic". The results are then compiled into the NAHB Housing Market Index. In June, home builders responded as follows : • Current Single-Family Sales : 32 (+2 points from May 2012) • Projected Single-Family Sales : 34 (Unchanged from May 2012) • Buyer Foot Traffic : 23 (Unchanged from May 2012) Of particular interest to today's new construction buyers, though, is that the nation's home builders report higher levels of single-family sale and expect sales volume to increase over the next six months. Buyer foot traffic is high and mortgage rates are low. Get Mortgage Rates And A Purchase Pre-Approval Mortgage rates are cheap and they're combining with low home prices to make homes very, very affordable. No matter your downpayment -- from 3.5% with an FHA mortgage to something bigger -- housing payments are low. Planning to buy new construction this year or next? Consider moving up your time frame to get your best deal.
Monday, June 4, 2012
On Monday, June 11, the FHA will change its mortgage insurance premiums for the 5th time in four years. This time, it's creating a "two-tiered" system that benefits long-time FHA homeowners. Going forward, how much you pay in FHA mortgage insurance will be based on for how long you've been an FHA-backed homeowner. FHA Premiums Rise 5 Times In 4 Years The FHA has gained tremendous market share over the last six year. In 2006, the FHA had fewer than 5 percent of purchase mortgage money. Today, that share has grown to 35% or more. And, while that's happened, the FHA has faced the same sort of delinquency issues faced by Fannie Mae and Freddie Mac. Except, what makes the FHA different from Fannie and Freddie is that it has a congressional mandate to maintain a certain level of capital in its reserves. Since 2010, the FHA has been below that mandate. In 2012, it's been below by a lot. Remember that the FHA doesn't make mortgages -- it insures them. And when more loans go bad than were expected, the FHA teeters on bankruptcy. In order to recapitalize itself, therefore, the FHA chose to raise its mortgage insurance premiums (again), using money from its newest customers to fund the defaults on its oldest ones. It's not a good time to be a new FHA mortgage applicant. It's a great time, however, to be everyone else. The Latest FHA MIP Schedule FHA mortgage insurance is broken in to two parts. There's the upfront mortgage insurance payment that's due at closing and added to your loan size; and, there's the annual mortgage insurance premium that's paid monthly and added to your monthly payment. The amount of mortgage insurance paid upfront is the same for all FHA customers. The monthly amount, however, varies by loan term and loan-to-value. Refinancing An FHA Mortgage From Before June 1, 2009 Beginning June 11, 2012, all new FHA mortgages which replace an existing FHA mortgage from prior to June 1, 2009, will pay an upfront mortgage insurance premium of 0.01%, or $10 per $100,000 borrowed, plus a nominal annual mortgage insurance rate. The annual mortgage insurance premium schedule for such "grandfathered" loans is : • 15-year fixed rate mortgage with loan-to-value of 78% or less : No annual MIP required • 15-year fixed rate mortgage with loan-to-value greater than 78% : 0.55% annual rate • 30-year fixed rate mortgage, all loan-to-values: 0.55% annual rate There are no other mortgage insurance premiums due and no other loan fees for using the FHA's program. Note that these low FHA mortgage insurance premiums apply to refinances only. Purchases will not qualify by definition -- they don't replace loans from prior to June 1, 2009. As a real-life example, a homeowner in Philadelphia, Pennsylvania, with a 30-year FHA mortgage of $400,000, would be subject to a $40 upfront MIP expense at closing plus $183 due monthly for annual MIP. New Purchases And Refinancing An FHA Mortgage From Before June 1, 2009 The FHA charges a different set of mortgage insurance premiums, though, to homeowners who refinance a mortgage from after June 1, 2009; and, for home buyers using the FHA for a 3.5% low-downpayment mortgage or otherwise. The FHA charges these mortgage applicants more. Since April 9, 2012, the FHA has assessed non-grandfathered applicants an upfront mortgage insurance premium of 1.750%, or $1,750 per $100,000 borrowed, plus an annual mortgage insurance premium ranging from 0.000% to 1.600%. The annual MIP schedule for newer FHA mortgage varies based on three loan traits : (1) Loan-to-value, (2) Loan term, and (3) Loan size. The annual MIP schedule is as follows : • 15-year loan term, LTV less than, or equal to, 78 percent : No annual MIP required • 15-year loan term, LTV less than, or equal to, 90 percent : 0.35% percent annually • 15-year loan term, LTV greater than 90 percent : 0.60% percent annually • 30-year loan term, LTV less than, or equal to, 95 percent : 1.20% percent annually • 30-year loan term, LTV greater than 95 percent : 1.25% percent annually In addition, all FHA mortgages in high-cost areas where the loan size exceeds $625,500 are subject to an additional 0.250% in annual MIP. As a real-life example, a homeowner in Fairfax, Virginia, with a 30-year FHA mortgage of $729,750, would be subject to a $12,770 upfront MIP expense at closing plus $973 due monthly for annual MIP. Apply Now To Beat The June 11, 2012 Deadline The FHA's newest MIP changes don't go into effect until Monday, June 11. 2012. This means that if you have a "jumbo" FHA loan and you live in a high-cost area, you'll want to apply for your FHA mortgage immediately. It will save you 0.25% annually. Or, if you have a grandfathered FHA loan from before June 1, 2009, you may want to start your loan application ASAP. You don't need to wait until June 11 to lock your rate -- only to get your FHA Case Number. If you start this week, you can still close on your loan in June, and the sooner you start saving money, the better. Be sure to check today's FHA mortgage rates, too. That's a big piece of the puzzle.