It has been five years since the collapse of the financial markets. Five years ago, the world financial systems were on the brink of collapse. For five years we have been crawling out of a deep hole. You can’t get very far by crawling, but if one moves forward little-by-little for five years, how far we have come will look very impressive. Let’s just look at the stock markets. Early in 2009 the Dow Jones Industrial Average bottomed at just under 6500 in reaction to the crisis. This year the Dow has topped 15,500 twice. That is a gain of approximately 140% in under five years. Even more impressively, the gain does not seem to be slowing much as the rally matures. Thus far in 2013, gains have exceeded 15%.
Every time the markets look like they are in the middle of a correction, they seem to bounce back nicely. This year, the market has been affected by rising interest rates and the situation in Syria. Each time there is a pull-back it is brief and then a comeback ensues. One has to ask if there is more room on the upside after such a run. The answer boils down to two issues. First, will the economy keep recovering at a decent pace? Second, will this recovery cause interest rates to rise high enough to slow down the train? The economic recovery is definitely stronger today paced by a recovered auto industry and recovering real estate markets. But it still has not been strong enough to create enough jobs to replace those lost in the recession, let alone keep on pace with population growth. The statement released after the meeting of the Federal Reserve Board last week echoed that concern. Growth that is too strong might actually turn out to be a recipe to slow the run we have seen.
The Markets. Rates eased in the past week. Freddie Mac announced that for the week ending September 19th, 30-year fixed rates decreased to 4.50% from 4.57% the week before. The average for 15-year loans also fell to 3.54%. Adjustable rates were lower as well, with the average for one-year adjustables falling to 2.65% and five-year adjustables decreasing to 3.11%. A year ago 30-year fixed rates were at 3.49%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates drifted downwards this week amid signs of a weakening economic recovery. Retail sales rose 0.2 percent in August which was nearly half of July’s 0.4 percent increase. In addition, industrial production in August grew 0.4 percent, less than the market consensus forecast. And lastly, consumer sentiment fell for the second consecutive month in September to the lowest reading since April. This, in part, was why the Federal Reserve chose to maintain its MBS and bond-buying program at its monetary policy committee meeting. It also cited the tightening of financial conditions observed in recent months.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated September 20, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.03%||0.07%|
|1-year Treasury Security||0.10%||0.13%|
|3-year Treasury Security||0.69%||0.70%|
|5-year Treasury Security||1.49%||1.52%|
|10-year Treasury Security||2.76%||2.74%|
|12-month LIBOR||0.668% (Aug)|
|12-month MTA||0.149% (Aug)|
|11th District Cost of Funds||0.954% (July)|
Housing demand from move-up buyers — or existing homeowners selling their current properties to replace them with a more expensive home — is on the rise as home equity levels improve. As home prices continue to increase, so does demand from move-up buyers, who are now able to provide a substantial downpayment on a new home after gaining value on rising equity, the latest report from real estate data firm FNC revealed. “An important sign of a healthy and sustainable recovery is increased housing turnover driven by trade-up buying, which is more or less discretionary spending,” FNC Director of Research Yanling Mayer said. “These buyers are typically more responsive to market conditions and financial incentives,” she added. Much of the desire for move-up buyers lies behind rising rates. “They know if they don’t move now, they might be kicking themselves all over again in three months,” said Redfin Los Angeles real estate agent Eric Tan back in July, when rates were throttling upward. Historically, rates remain very low, but experts predict they will continue to gain steam as we move into 2014. According to Daren Blomquist, vice president of RealtyTrac, 18.5 million homeowners — 40% of all homeowners — have at least 20% equity or more, putting them in a prime position to sell. “In addition, we show 8.3 million homeowners who are on the equity fence, and should have at least 20% equity in the next 15 months if home prices continue to appreciate at the same rate we’ve seen over the past 15 months,” Blomquist said in an interview with HousingWire. Blomquist noted that if 5% of these 8.3 million homeowners list their homes for sale, that’s an additional 415,000 homes that will be available for sale in the coming months. “The increase in the share of equity sales reflects a market that is fully transitioning from investor purchases of distressed homes to primary home purchases by households,” said California Association of Realtor Vice President and Chief Economist Leslie Appleton-Young in a recent equity report. “The market continues to improve as more previously underwater homes gain equity due to recent upward movements in price.” Source: HousingWire
For the past three years, the average size of new homes has been on the rise. The median new-home size in 2012 reached a record high at 2,306 square feet, according to newly released data from the Census Bureau. That is an 8 percent increase from 2009. During the Great Recession, Americans showed a preference for smaller homes, and many housing experts were saying it meant the end of the McMansion. But Jeffry Roos, a regional president for homebuilder Lennar, told CNNMoney that it wasn’t that Americans wanted less space, they just couldn’t afford more space at the time. Now, they’re upsizing again. A spokeswoman for GL Homes says that the builder has been selling homes that average 7 percent larger than during the first five months of 2012. Some consumers are choosing to buy larger because they have more people under their roof. Lennar offers homes known as Next Gen, which feature separate suites for a mother-in-law or college grad who has moved back home. Home shoppers tend to buy bigger than what they originally plan, Fred Cooper, a spokesman for Toll Brothers, told CNNMoney. ”In the downturns, in upturns, whenever, our customers typically added another 18 to 20 percent of floor space onto what already was a very nice house to begin with,” Cooper says. Source: CNNMoney
The condo sector has experienced lackluster growth in sales and development the last few years, but it may finally be seeing a turnaround in markets across the country. Condo sales are showing signs of strengthening as demand picks up from Baby Boomers and young professionals. Sales of condo and co-op units were up 23 percent in July from a year ago, according to preliminary data from the National Association of Realtors®. All regions were recording at least a 20 percent year-over-year growth. The Midwest and South have seen some of the largest gains. The median sales price for condos and co-ops was $209,600 in July—a 15.5 percent increase from a year earlier. High-rise condo building may be poised for a lift nationwide. New development is moving forward in urban residential centers and popping up in smaller cities as well, Investors Business Daily reports. For example, a wave of Latin American cash is financing a new condo boom in the Miami area. The National Association of Home Builders reports that condo developer optimism skyrocketed in the second quarter, reaching its brightest outlook in eight years, according to an index that measures builder sentiment for the sector. A growing interest in high-rise condo construction coincides with a slowly recovering market for new homes, experts note. Still, financing condo construction remains an obstacle for many developers. Developers may need to show that their projects also work as rentals when they are seeking approval for a loan, says Mark Humphreys, CEO of Humphreys & Partners Architects, based in Dallas. Source: Investors Business Daily
Are Fannie Mae and Freddie Mac making plans to lend less money?
For the first time since 1990, 2014 conforming loan limits will likely be lower than the year prior’s limits, a move which would make it harder for home buyers and refinancing households to qualify for conforming home loans.
The loan limit changes would take effect January 1, 2014.
What Is A Loan Limit?
Loan limits are appropriately named. They are the maximum allowable loan size for a mortgage. Loan limits vary by product and region, and are included in a program’s specific mortgage guidelines.
For example, the Federal Housing Administration enforces specific loan limits for FHA loans; and the Department of Veterans Affairs maintains specific loan limits for VA loans. Loans which exceed an FHA loan’s local loan limit cannot be insured and loans exceeding a VA loans local limit cannot be guaranteed.
For conforming loans — loans backed by Fannie Mae or Freddie Mac — loan limits have been unchanged since 2006 when the government moved to raise the national limit to $417,000.
Conforming loans which exceed a local loan limit are commonly known as “jumbo loans”. Jumbo loans are typically not backed by Fannie Mae or Freddie Mac, and are offered by local and national banks.
Jumbo mortgage rates are sometimes higher and sometimes lower as compared to conforming ones. However, because jumbo loans are not government-backed, eligibility requirements are often more stringent.
There aren’t many low-downpayment options in the jumbo mortgage market. Plus, income and credit score requirements are often higher. This is why the 2014 conforming loan limit discussion is an important one.
With lower conforming loan limits, fewer home buyers will be mortgage-eligible in 2014.
Conforming Loan Limits For 2014
Each year, near Thanksgiving, Fannie Mae and Freddie Mac announce their respective conforming loan limits for the upcoming year. The announcement is rarely made with fanfare or advance notice. This year, however, the FHFA has prepped the markets for a drop.
In 2006, conforming loan limits were raised to $417,000. Limits were held at that figure between 2007-2013 despite falling U.S. home values. Officials cited their want to make mortgage credit available to home buyers during a crucial stage of the housing market’s recovery.
If we use history as a guide, according to the Home Price Index, which is published by Fannie Mae and Freddie Mac’s parent, today’s home values are roughly the same as what home values were in 2005. In 2005, the conforming loan limit for a 1-unit home was $359,650.
2014 conforming loan limits won’t likely drop that far. Rather, a 4% decrease may be more reasonable, which would lower loan limit for a single-unit property to $400,000.
Assuming a 4 percent change, the 2014 conforming loan limit chart would look as follows :
- 1-unit home : $400,000
- 2-unit home : $501,800
- 3-unit home : $606,600
- 4-unit home : $753,800
The final conforming loan limits for 2014 may be higher or lower than the list above. The FHFA won’t likely declare them until late-November 2013.
What If My Loan Is Over The Conforming Loan Limit?
When the 2014 conforming loan limits are released, you may find that your mortgage no longer meet the guidelines of a Fannie Mae or Freddie Mac mortgage. This doesn’t mean that you’ll be suddenly mortgage-ineligible.
Homeowners whose loan sizes exceed conforming loan limits have lots of mortgage options. One such option is the FHA.
FHA loans are loans insured by the Federal Housing Administration. FHA loans allow for low downpayments of just 3.5 percent and feature more flexible approval standards as compared to conventional loans.
Borrowing via the VA is an option, too. VA loans are loans guaranteed by the Department of Veterans Affairs. VA loans can also be made at larger sizes than conforming ones, however, VA loans are available to military or ex military borrowers only.
Among the remaining ways to get financed are USDA loans for homes in non-urban city centers; and jumbo and private loans made by local and retail banks. (source: Dan Green Mortgage Blog)
Many have wondered why interest rates have risen so sharply this year without the economy showing significant enough strength to heat up inflationary pressures. Yes, the threat of the Federal Reserve decreasing stimulus by lowering their purchases of Treasuries and Mortgage Backed Securities hovers over the markets. Yet, the Fed would not be considering lessening stimulus if they were not more confident about the economy. One must remember that these extraordinary measures were put in place to keep us out of a second recession as the world-wide economy was slowing while we were struggling to come back from our deep recession. How many times did we hear that Europe’s recession and fiscal crisis could drag us back into recession?
In the past we asked the question — will Europe pull us back into recession or will we lead Europe out of recession? We surmised that if the real estate markets in the U.S. continued their recovery, then it was more likely that we would help lift Europe up. While we can’t say there was a direct relationship, the news released recently that the Eurozone had a positive quarter of growth bodes well for this scenario as well. A 0.3% growth rate for the 17-nation area is nothing to write home about, but it is progress. One should remember that the central banks in Europe have been applying their own brand of low interest rate stimulus. The fact is that Europe is not out of the woods and we are a long way from a normal recovery. However, the easing of Europe’s recession weakens another threat to our economy. The Fed’s reaction to lessen stimulus is a normal reaction to the lessening of threats. We are still a long way from ending all stimulus activity from the Fed but we seem to be on the doorstep of the first move.
The Markets. Rates trended up during the past week. Freddie Mac announced that for the week ending August 22, 30-year fixed rates rose to 4.58% from 4.40% the week before. The average for 15-year loans was up to 3.60%. Adjustable rates were mixed, with the average for one-year adjustables remaining at 2.67% and five-year adjustables decreasing to 3.21%. A year ago 30-year fixed rates were at 3.66%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Fixed rates continued to follow bond yields higher leading up to the August 21st release of the Federal Reserve monetary policy committee’s minutes for July. In its July 30th and 31st meetings, the committee members were broadly comfortable with a plan to start reducing its bond purchases later this year, although a few emphasized the importance of being patient. Meeting participants acknowledged mortgage rate increases might restrain housing market activity, but several members expressed confidence the housing recovery would be resilient in the face of higher rates. In fact, existing home sales increased in July to the strongest pace since November 2009 and homebuilder confidence in August rose to its highest reading since November 2005. Both increases occurred after rates had risen from their spring-time lows. Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated August 23, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.06%||0.07%|
|1-year Treasury Security||0.14%||0.12%|
|3-year Treasury Security||0.82%||0.64%|
|5-year Treasury Security||1.71%||1.40%|
|10-year Treasury Security||2.90%||2.58%|
|12-month LIBOR||0.684% (July)|
|12-month MTA||0.153% (July)|
|11th District Cost of Funds||0.954% (June)|
The Federal Housing Administration is making it easier for once-struggling homeowners to qualify for a home loan backed by the agency. For borrowers who meet certain requirements, the FHA is trimming to one year the amount of time that homebuyers must wait after a bankruptcy, foreclosure or short sale before they may qualify for a FHA-backed mortgage. The waiting period had been two years after the completion of a bankruptcy and three years after a foreclosure or a short sale. But only certain consumers who’ve been in those circumstances will be able to meet the criteria attached to the eased restrictions. Borrowers must be able to show their household income fell by 20 percent or more for at least six months and was tied to unemployment or another event beyond their control. They also must prove they have had at least one hour of approved housing counseling and, among other things, have had 12 months of on-time housing payments. “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” said FHA Commissioner Carol Galante, in a letter announcing the changes. FHA-backed loans are a popular option for first-time buyers and for consumers with lower credit scores who might not otherwise qualify for a loan backed by Fannie Mae or Freddie Mac. Keep in mind that not all lenders will implement these guidelines as liberally as lenders can be more stringent than FHA guidance. Source: Mortgage Daily and FHA
On closing day, expect to sign a lot of documents and walk away with a big stack of papers. Here’s a list of the most important documents you should file away for future reference:
- HUD-1 settlement statement. Itemizes all the costs — commissions, loan fees, points, and hazard insurance —associated with the closing. You’ll need it for income tax purposes if you paid points.
- Truth in Lending statement. Summarizes the terms of your mortgage loan, including the annual percentage rate and rescission period.
- Mortgage and note. Spell out the legal terms of your mortgage obligation and the agreed-upon repayment terms (if they go to refinance, they will need to provide this).
- Deed. Transfers ownership to you.
- Affidavits. Binding statements by either party. For example, the sellers will often sign an affidavit stating that they haven’t incurred any liens.
- Riders. Amendments to the sales contract that affect your rights. Example: The sellers won’t move out until two weeks after closing but will pay rent to the buyers during that period.
- Insurance policies. Provide a record and proof of your coverage. Source: Realtor Magazine
The Millennial generation is showing a preference for fixer-upper houses over the “cookie cutter” luxury homes their parents’ generation tended to desire, according to a national survey by Better Homes and Gardens Real Estate. About one in three 18-to-35 year olds recently surveyed say they prefer a “fixer-upper” home with minimal repairs needed. Forty-seven percent say they would be more likely to handle home maintenance jobs themselves over calling in a professional for help. What’s more, 72 percent of Millennials consider themselves handy, earning the nickname the “Fix-It Generation,” according to the survey. They also aren’t looking for big, luxury homes like their parents but they don’t mind if a home is smaller, as long as it’s unique, the survey showed. Forty-three percent say they want a home that is more customized and less “cookie cutter.” They expect each room in the house to fit their lifestyle. Also, 56 percent say that home technology capabilities are more important than a house with great curb appeal. Sixty-four percent of Millennials said they wouldn’t even consider living in a home that doesn’t have the latest tech capabilities. Eighty-four percent say that technology is essential for their new home, with the most sought-after tech in the home being an energy-efficient washer and dryer, a security system, and a smart thermostat. Source: Realogy
Whipsaws and whiplash. We all know what the term whiplash means when someone gets into a car accident. When we hear the term, we envision a painful neck injury and maybe a neck brace. This term is also often used with the term “whipsaw” when observing the markets. A whipsaw occurs when the market moves erratically in several directions. And if you follow that market, you can get economic whiplash. Now the stock market has not been that erratic as it has steadily moved upward this year with a few days of retrenchment here and there. However, the bond market has been a bit more schizophrenic in its personality this year. For the past few years, the bond market has been a safe haven from volatile markets. The Federal Reserve Board pushed rates down and the struggling economy kept them down.
Anyone who purchased or refinanced a home or bought a car has seen the benefit of low rates in the past few years. And those who put their money into bonds have seen a good steady return for the most part. At the beginning of this year, it appeared that the economy was going to start to roll. Rates then made their first move upward in the past several months. Then came some headlines in Cyprus, the Boston bombing and some weaker economic reports. Rates edged back down to near historic levels. The stronger-than-expected employment report caused rates to move up in short order. That is a lot of movement for a market which still features historically near record lows. On the other hand, it is a lesson to be learned. When rates decide to move upward, there is nothing the Fed can do about it. And we will get no warning.
The Markets. Rates edged up again for the second straight week. Freddie Mac announced that for the week ending May 16, 30-year fixed rates rose from 3.42% to 3.51%. The average for 15-year loans increased to 2.69%. Adjustable rates were also higher, with the average for one-year adjustables rising to 2.55% and five-year adjustables climbing to 2.62%. A year ago 30-year fixed rates were at 3.79%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on home loans followed U.S. Treasury bond yields higher this week on signs of stronger consumer spending. Advanced retail sales rose 0.1 percent in April, above the market forecast consensus of a 0.3 percent decline. Excluding such items as automobiles and gasoline, sales were up 0.5 percent for the second time in three months. Households are also shoring up their balance sheets. Total household debt fell by about $110 billion in the first quarter.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated May 17, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.08%||0.09%|
|1-year Treasury Security||0.12%||0.12%|
|3-year Treasury Security||0.37%||0.34%|
|5-year Treasury Security||0.79%||0.71%|
|10-year Treasury Security||1.87%||1.76%|
|12-month LIBOR||0.717% (Apr)|
|12-month MTA||0.169% (Apr)|
|11th District Cost of Funds||0.967% (Mar)|
Homeowners will see increases in the rates they pay for flood insurance soon with owners of vacation homes seeing the biggest jump. Though floods can bring walls of water 20 feet high, even a few inches of water can cause thousands of dollars in damage. Between 2007 and 2011, the average flood claim fielded by the National Flood Insurance Program was nearly $30,000. The cost of the typical flood policy is about $625 a year. According to the Federal Emergency Management Agency, which operates the flood insurance program, flooding occurs practically every day, practically everywhere. And it is costly, racking up $2.9 billion in losses between 2002 and 2011. Flooding is the nation’s most common natural disaster. About 90% of all disasters in the U.S. involve flooding, and flash floods happen in all 50 states. In areas prone to flooding, there is a 26% chance a homeowner will be hit by a flood of some kind at least once during the life of a 30-year loan. And flood damage can just as easily result from overburdened or clogged drainage systems and drainage from new development as from major storms. “New roads and housing developments reduce the land’s natural ability to absorb water,” says The Woodlands, Texas, insurance agent Gordy Bunch. “Runoff can multiply as much as six times when the land is paved over.” Just because a house lies in the 100-year flood plain doesn’t mean it is safe for the next so many years, either. That’s a common misconception that lulls people into a false sense of security, says Bunch. “The 100-year flood plain simply means your home or business has a 1% chance of flooding every year,” the insurance pro says, “not once in every 100 years.” Another common misunderstanding about flood coverage, particularly among new homeowners, is that standard homeowner policies cover homes for flood damage. They do not. So if their home is damaged by a hurricane, tropical storm or even heavy rains, they are not covered unless they have a separate flood policy. Every inch of the country is mapped into one of two risk-based flood zones. By law, federally regulated and insured lenders must require flood coverage on properties in high-risk areas, where there’s a 1% or greater chance of flooding in any given year. Lenders must tell you whether the property is in a high- or low-risk area. Lenders typically do not require coverage on properties in low- to moderate-risk areas. But coverage is still recommended; one-in-five claims come from folks outside a high-risk zone. Fortunately, everyone—even renters and business owners—can buy a flood policy. The lone caveat is that the property must be in a community that participates in the NFIP, which Congress created in 1968 to fill a void in coverage that most private companies would not offer. About 20,000 communities participate. Source: National Mortgage Servicing News
To have a high credit score, individuals tend to keep revolving balances low to their available credit, not max out credit cards, and consistently make payments on time, according to the company behind the FICO credit score. FICO recently released findings from a study about the habits and behaviors of those who have the highest credit scores — 785 or greater. These high-credit scorers tend to qualify for the best rates on home loans, saving thousands of dollars over the life of a loan. Nationwide, 25 percent — or 50 million people — are considered “high achievers” with their credit scores. “High achievers” tend to exhibit some of the following behaviors, according to FICO:
- 96 percent have no missed payments on their credit report. For any who have a missed payment, it occurred, on average, about four years ago. (Payment history makes up 35 percent of a person’s credit score.)
- They tend to have a well-established credit history and rarely open up new accounts. On average, the oldest credit account was opened 25 years ago. Overall, according to FICO, these “high achievers” tend to have credit accounts that are at least 11 years old.
- They’re not always debt-free: They average about seven credit cards, including both open and closed accounts, and have an average of four credit cards or loans with balances. One-third of “high achievers” have balances of more than $8,500 on non-mortgage accounts. The remaining two-thirds have total balances of less than $8,500.
- About 1 in 100 have a collection listed on their credit report. What’s more, 1 in 9,000 has experienced tax liens or even a bankruptcy.
“While people with a high FICO Score are not perfect, their consistently responsible financial behavior usually pays off over time,” says Anthony Sprauve, credit score advisor for myFICO. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.” Source: FICO
Home improvement spending is expected to grow as the year progresses, according to data released by the Joint Center for Housing Studies of Harvard University. And such a jump is not unusual, considering spending in the segment grew 10% last year alone. “Existing home sales were up almost 9% last year, and house prices are increasing in most markets across the country,” says Eric S. Belsky, managing director of the Joint Center. “This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes.” Kermit Baker, director of the Remodeling Futures Program at the Joint Center, believes growth in real estate sales and prices is starting to put pressure on the current capacity of the home improvement industry. “Contractors and subcontractors are having more difficulty finding skilled labor, and building materials costs are unusually volatile for this stage of a recovery,” notes Baker. Source: HousingWire
Right now the markets are warily eyeing a possible slowdown in the economic recovery. While we can’t tell you if we are indeed in the middle of another pause, we can tell you that we are already reaping some benefits of even the hint of a pause. What are these benefits? Oil prices, interest rates and gold prices have all fallen. It is easy to see the benefits of lower gas prices and rates with regard to the economy. Lower gas prices give consumers more money to spend. Lower rates encourage refinancing as well as home and automobile purchases. The real estate and auto industries were already in recovery mode before interest rates eased back. For example, in March nearly 1.5 million cars and trucks were sold, a number not seen since May 2007. In addition, housing starts broke the 1.0 million mark in March, the strongest performance since June of 2008. On the other hand, why should we care that gold prices are dropping?
Of the three, the move in gold has been much steeper than oil or rates. When the financial crisis hit five years ago, there was a threat that the financial system would collapse and move us into a depression. Gold soared in response to this threat. Even during the recovery — every time we had a pause — gold prices stayed strong because there was a threat of a double dip recession. Today, there is a possibility of a pause, but gold prices are weak. Is it because we are no longer worried about our economy slipping back into recession or is it because countries in trouble like Cyprus could be selling their stores of gold? In either case, we can say that gold is falling back at a time in which the economy continues to grow at a pace which will not ignite inflation. That is the best type of growth possible. Lower energy prices, lower interest rates and positive economic growth are a strong combination. Of course, we all wish that the economic recovery would become even stronger. However, there are benefits to a moderate recovery — especially if it does not come with the threat of a recession around the corner or inflation down the road.
The Markets: Rates continued down in the past week, albeit slightly. Freddie Mac announced that for the week ending April 18, 30-year fixed rates fell from 3.43% to 3.41%. The average for 15-year loans decreased marginally to 2.64%. Adjustable rates were mixed but also stable, with the average for one-year adjustables up slightly to 2.63% and five-year adjustables falling to 2.60%. A year ago 30-year fixed rates were at 3.90%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on home loans nudged lower this week as consumer spending showed signs of weakness. Retail sales contracted for the second time in three months, falling 0.4 percent in March. In addition, the University of Michigan reported their Consumer Sentiment Index dropped 6.3 points in April to settle at 72.3, its lowest level since July. The April reading snapped a streak of three consecutive gains.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated April 19, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.09%||0.11%|
|1-year Treasury Security||0.12%||0.15%|
|3-year Treasury Security||0.35%||0.39%|
|5-year Treasury Security||0.71%||0.82%|
|10-year Treasury Security||1.72%||1.96%|
|12-month LIBOR||0.736% (Mar)|
|12-month MTA||0.174% (Mar)|
|11th District Cost of Funds||0.999% (Feb)|
The Home Affordable Refinance Program — a government refinancing program for underwater home owners — will be expanded for another two years, the Federal Housing Finance Agency announced. HARP was originally set to expire Dec. 31, 2013, but will now be extended to the end of 2015. “More than 2 million home owners have refinanced through HARP, proving it a useful tool for reducing risk,” says FHFA acting director Edward DeMarco. Home owners eligible to apply for refinancing under HARP must have a Fannie Mae- or Freddie Mac-backed mortgage that was guaranteed on or before May 31, 2009, must be current on their loan, and must have a current loan-to-value ratio more than 80 percent. Source: Chicago Tribune If you are interested in finding out whether you could benefit from a HARP refinance, which is designed for homeowners that are underwater on their home loans — contact me.
Home ownership and rental demand may both get an uptick as a large number of immigrants are expected to enter the United States and call it home by 2020, according to a new study sponsored by the Mortgage Bankers Association’s Research Institute for Housing America. The study makes projections to the year 2020 on the growth of U.S. home owner households headed by immigrants. The number of foreign-born home owners continues to grow bigger each decade, according to the report. For example, the number of foreign-born home owners rose 800,000 from 1980 to 1990; by 2.1 million from 1990 to 2000; and then by 2.4 million from 2000 to 2010. For the 2010 to 2020 period, researchers project that number to rise 2.8 million. The home ownership rate has particularly grown among the Hispanic immigrant population. In 1990, Hispanic immigrants had a 15 percent home ownership rate, which grew to nearly 53 percent in 2010. By 2020, Hispanics’ home ownership rate is expected to rise above 61 percent, according to researchers. The states with the greatest demand from the foreign-born on home ownership are California and New York. The report was prepared by Dowell Myers, professor of the Population Dynamics Research Group at the University of Southern California School of Policy, Planning and Development; and Senior Research Associate John Pitkin.”Immigrants are an important and growing source of demand that has bolstered housing markets in recent decades,” Myers said. “Growth in housing demand in recent decades has been more stable among foreign-born than native-born households. This is because increases in native-born demand have been subject to large swings in the size of cohorts reaching ages 25 to 34, the most common age of entry to the housing market. Rising numbers of foreign-born households are driven by the continued increases in homeownership rates achieved as immigrants settle longer in the United States,” Pitkin said.” Source: The Mortgage Bankers Association
The number of listings on the market increased 2.36 percent in March from the previous month — possibly an indication that sellers are becoming more willing to put their homes on the market as asking prices increase, according to housing data from realtor.com. While the data shows a month-to-month inventory increase, inventories are still down 15.22 percent compared to last year. The median age of the inventory continues to drop year-over-year by 12.35 percent, the amount of time homes are sitting on the market has fallen by 20 days since February, according to realtor.com. The median age of inventory of for-sale listings was 78 days in March. “The next three months will be significant in determining the impact of the recovering housing market,” says Steve Berkowitz, chief executive officer of Move Inc. Median list prices have increased year-over-year in a greater number of the 146 markets realtor.com tracks. Source: RIS Media
For the first time, Congress has failed to kick the can down the road before a fiscal deadline hit. We are now fully sequestered. What does that mean? On one hand, we can say that it does not mean much if you look at the stock market. Most of us would have thought that the stock market would take a hit as the deadline expired. Yet, stocks were up solidly this week and for the month of February. Are the markets thinking that Congress will take action after March 1st, but before the cuts really have a chance to hurt the economy? Or are the markets perhaps thinking that the cuts will not affect the economy that much? You could make a case for either argument at this time.
On the other hand — if we look closer stocks were not fazed by the cuts — but oil prices and interest rates did fall this week. Both rates and oil prices trended higher earlier this year as stocks rallied and the fall-back came despite positive economic news released in the past few days. This positive news included continued upbeat news from the real estate sector. Usually when the stock market is strong, oil prices and interest rates are rising. If this trend holds, lower rates and oil prices in the face of positive economic news could actually give the economy a boost to offset the dampening effect government cuts might have on the economy. To make matters more complex, we have the all important employment reports released this week. Our first week under sequestration could be an interesting one, indeed.
The Markets. Rates were down in the past week. Freddie Mac announced that for the week ending February 28, 30-year fixed rates fell from 3.56% to 3.51%. The average for 15-year loans was down slightly at 2.76%. Adjustable rates were also down, with the average for one-year adjustables falling slightly to 2.64% and five-year adjustables decreasing to 2.61%. A year ago 30-year fixed rates were at 3.95%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates eased somewhat as the consumer price index in February held steady for the second month in a row. House price indicators, however, showed gains in 2012. The S&P/Case-Shiller® national home price index rose 7.3 percent last year, reflecting the largest four-quarter growth since the third quarter of 2006. This, in part, was a driving force that pushed up the number of existing and new home sales in February to the highest levels since July 2007 and July 2008, respectively.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated March 1, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.13%||0.11%|
|1-year Treasury Security||0.17%||0.15%|
|3-year Treasury Security||0.36%||0.39%|
|5-year Treasury Security||0.77%||0.81%|
|10-year Treasury Security||1.89%||1.91%|
|12-month LIBOR||0.818% (Jan)|
|12-month MTA||0.178% (Jan)|
|11th District Cost of Funds||0.962% (Jan)|
During the peak of the housing crisis, foreclosed homes sold at a 25% discount on average, but the market is stabilizing and the price differentiation between a home’s foreclosed valued and original market value is beginning to narrow, FNC reported. The real estate analytics firm released a Foreclosure Market Report recently, saying home prices are rising in many metro areas while foreclosure prices are starting to bottom out, creating some price stability. “The fact that we are seeing a combination of rising home prices and a bottoming out of foreclosure prices is a very good sign the housing recovery is taking hold,” said Dr. Yangling Mayer, FNC Senior Research Economist. “This is the very first time in the long housing recession that the two are happening at the same time.” By the fourth quarter of 2012, the average foreclosure discount, which is a comparison between a foreclosed home’s market value and its final sales price, had dropped to 12.2%, compared to 25% during the peak of the downturn. Single-family REO and foreclosure sales made up 18.1% of the market in the fourth quarter of 2012, down from 26.5% in the first quarter of the same year, FNC said. Source: HousingWire
Near-record low interest rates helped ensure a gain in nationwide housing affordability amid relatively stable house prices in the final quarter of 2012, according to the National Association of Home Builders Housing Opportunity Index (HOI). In all, 74.9 percent of homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $65,000. This was up nearly a percentage point from the 74.1 percent of homes sold that were affordable to median-income earners in last year’s third quarter. “The most recent housing affordability data should be encouraging to many prospective home buyers, because it shows that homeownership remains within reach of median-income consumers even as most local markets appear to be on a recovery path,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. He noted that the most recent reading of the NAHB/First American Improving Markets Index found that 259 out of 361 metros currently qualify as improving, including representatives from all 50 states and the District of Columbia. “The median price of all new and existing homes sold in the fourth quarter of 2012 was $188,000, essentially unchanged from the previous quarter’s $189,000 that marked a nearly three-year high,” noted NAHB Chief Economist David Crowe. “It is noteworthy that affordability remains historically high thanks to favorable rates even as national home price indexes show some rise in values.” Source: NAHB
Nearly 20 percent of recent movers identified “convenience to job” as the most important factor in their choice of neighborhood in 2011, according to the 2011 American Housing Survey (AHS), the definitive source of information on the quality of housing in the United States. For the first time ever, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) have made survey results available on the Census Bureau’s American FactFinder data access tool. A wide range of specific topics is covered in the survey, including plumbing and source of water and sewage disposal; housing problems; householder’s satisfaction with home and neighborhood; value, purchase price and type of home loan; recent home improvement activity and costs; safety features and potential health hazards; features in home providing accessibility to people with disabilities; and socio-economic characteristics of the householder. Statistics are national-level only and are provided for apartments, single-family homes, manufactured housing, new construction and vacant housing units. Recent movers were also asked how they found their current units. The most common methods for home owners were talking with a real estate agent (20 percent), Realtor.com (17 percent) and word of mouth (16 percent). For renters, the most common ways included word of mouth (34 percent), sign on the outside of the building (11 percent) and Craigslist (11 percent). Highlights on the nation’s 115 million occupied homes:
- The median year these homes were built was 1974, with owner-occupied units being slightly newer (1976 compared with 1972 for renter-occupied).
- The median size of single-family detached and mobile home units is 1,800 square feet, with owner-occupied units being larger (1,800 square feet) than renter-occupied ones (1,300 square feet). Newly constructed units are also usually larger, with a median size of 2,200 square feet.
- Most homes have three or more bedrooms (64 percent). New homes (those built in the last four years) generally have more bedrooms, with 74 percent of them having three or more.
- About half the homes (52 percent) have two or more bathrooms. Again, new units have more bathrooms, with 83 percent of them having two or more. Source: HUD
It has been a few weeks since the politicians have rattled their sabers at each other and therefore we are due for increased rhetoric. With the State of the Union Address and response behind us, we now approach the deadline to head off draconian budget cuts. By now the markets may be immune to deadlines set by politicians. With the negotiations regarding the fiscal cliff fizzling out and the big fight focused upon raising the debt limit postponed quietly, many are again expecting the same result. We know that Congress may surprise us and the surprise could go in two directions. The first direction would result in both parties digging in their heels as the budget cuts go into effect. The second direction would be actual negotiations to attack the deficit with a balanced plan that would result in more reasonable cuts and a long-term budget plan.
In reality, most market observers are expecting more action to kick the can down the road — again. Meanwhile, we are closing in on another employment report as we start to get more readings as to the state of the economy in 2013. This data will follow readings on the real estate market to be released this week. There was a lot of optimism during January as the stock market roared and interest rates and oil prices climbed. This trend only continues if real estate continues to gain momentum and we continue to create jobs at a pace to bring down the stubborn unemployment rate. As we have contended previously, the rebound in real estate is a requirement of increased job creation. The numbers released last week show that Europe’s recession is actually deepening. This means that it is imperative for the United States to be building momentum that will help lift the rest of the world. As the world’s largest economy, we led the world into recession some five years ago. Now we need to show leadership in recovery.
The Markets. Rates continued to be stable in the past week. Freddie Mac announced that for the week ending February 14, 30-year fixed rates remained at 3.53%. The average for 15-year loans also stayed at 2.77%. Adjustable rates fell, with the average for one-year adjustables rising to 2.61% and five-year adjustables increasing to 2.64%. A year ago 30-year fixed rates were at 3.87%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates remain near record lows and continue to support housing demand, translating into a pick-up in home prices in most markets. The median sales price of existing homes rose 10 percent between fourth quarter 2011 and 2012, the largest year-over-year gain in seven years. Among large metropolitan areas, 88 percent saw positive annual increases in the fourth quarter, compared to 81 percent in the third quarter and 75 percent in the second. The largest gains occurred in Phoenix (34 percent), Detroit (31 percent) and San Francisco (28 percent).” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated February 15, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.13%||0.11%|
|1-year Treasury Security||0.16%||0.15%|
|3-year Treasury Security||0.42%||0.39%|
|5-year Treasury Security||0.86%||0.81%|
|10-year Treasury Security||2.00%||1.91%|
|12-month LIBOR||0.818% (Jan)|
|12-month MTA||0.178% (Jan)|
|11th District Cost of Funds||1.071% (Dec)|
Underwater borrowers who have stayed current with their housing payments now may be able to give up their properties and get their debts erased, according to new guidelines issued by housing agencies Fannie Mae and Freddie Mac. Non-delinquent borrowers who have Fannie and Freddie-backed loans and who can document a hardship, such as an illness, job change, or other situation that requires they must move can apply for a deed-in-lieu transaction. Eligible borrowers also must have a 55 percent debt-to-income ratio. Servicers will be required to confirm that the property has been left in good condition. Borrowers who are eligible will have the debt remaining between the property’s value and size of home loan erased. “The goal is to make sure people who have suffered a hardship have the appropriate options to prevent foreclosure,” says Andrew Wilson, spokesman for Fannie Mae. Borrowers may still be required some repayment, however, if the borrower has the means to do so. “Home owners applying for deed-in-lieu transactions may be asked to make cash contributions of up to 20 percent of their financial reserves, excluding retirement accounts,” Bloomberg reports about the guidelines. “Or, they may be asked to sign a promissory note for future no-interest repayments. The amount and terms can be negotiated.” Fannie and Freddie’s new eligibility for deed-in-lieu of transactions has been met with some criticism, particularly at a time with the government-sponsored enterprises are still underwater themselves from steep losses the last few years. But some argue that past programs tended to penalize borrowers on the brink of foreclosure who kept making their payments, says Julia Gordon, director of housing finance and policy at the Center for American Progress. Mortgage servicers in some cases were even advising borrowers to stop making their housing payment so that they could qualify for more assistance. “Fannie and Freddie are finally recognizing that some people are stuck in their homes,” Gordon told Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their home loan — not the investor, not the home owner, and certainly not the neighborhood.” Source: Bloomberg
Freddie Mac’s fourth quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house, as 84 percent of homeowners who refinanced their first-lien home loan either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table; just shy of the record 85 percent during the fourth quarter of 2011. Of these borrowers, 46 percent maintained about the same loan amount, and 39 percent of refinancing homeowners reduced their principal balance. “On average, borrowers who refinanced reduced their interest rate by about 1.8 percentage points, mark not seen for 27 years,” said Frank Nothaft, Freddie Mac vice president and chief economist. “On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months. Fixed-rate rates on home loan hit new lows during December, with 30-year product averaging 3.4 percent and 15-year averaging 2.7 percent that month, according to our Primary Mortgage Market Survey.” Source: Freddie Mac
If you’re one of the millions of homeowners and renters who work or run a business from the place you live, here’s some good news on taxes: The Internal Revenue Service wants to make it easier for you to file for deductions on the business-related use of your home. Rather than the complicated 43-line form you now have to fill out to claim a write-off — the instructions alone take up four pages of text and involve computations ranging from depreciation to utility bill expense allocations — the IRS has come up with a much simpler option: what it calls a “safe harbor” method that allows you to measure the square footage of your business space and apply for a deduction. The move comes at a time when the use of homes for work is soaring, thanks to technologies such as high-speed Internet and Skype. Last October, the Census Bureau estimated that as of 2010, 13.4 million Americans were making some type of business use of their homes and that home businesses employed nearly 10 percent of all workers. During the same year, the IRS says 3.4 million taxpayers filed for the home office deduction. Kristie Arslan, president and chief executive of the National Association for the Self-Employed, says, that the IRS rules for home offices have been “cumbersome and time-consuming. They also worried that they could be exposed to an audit by the IRS if they made mistakes in filing.” The new IRS option, which will be available for 2013 and beyond, allows owners and employees who work from home to deduct $5 per square foot of home office space per year, up to a maximum allowable space of 300 square feet. The write-off is capped at $1,500 per year, but the hassle factor is negligible. Here’s how it works. The Internal Revenue Code permits you to deduct expenses for a home office that is used “exclusively” and on a “regular basis” as your principal place of business “for any trade or business,” or as a place to meet with clients or customers. Provided you qualify on these threshold tests, the code allows you to deduct home loan interest, property taxes, rent, utilities, hazard insurance and other expenses based on the percentage of the total space of the home that is attributable to your business use. Though this method can produce sizable deductions, critics have long argued that the computations for some of the allowable items — depreciation on the house you own is one — can be tricky and require significant record-keeping and time expenditures to get it exactly right. In addition, the IRS has acknowledged that the presence of a home office deduction on a taxpayer’s filing may increase that taxpayer’s potential for being selected for audit. The new streamlined approach essentially boils everything down to just one measurement: How much square footage that qualifies for business-purpose treatment are you using? Multiply that number by $5 per square foot and you’ve got your deduction amount. As long as this does not exceed $1,500, you can use the new short form write-off. If the total is more than $1,500, you can use the more complicated option. Source: Ken Harney, The National Housing
It is all about momentum. For the last couple of years we have had an economic recovery of sorts. But anyone can tell you that the recovery has been lacking spark as it seems like every year the recovery hits a mini-slump. Last year the slump hit as we approached mid-year and the European debt crisis worsened. The economy bounced back from this mini-slump but it slowed the momentum of the recovery over the year. Yes, momentum. We want the recovery to gain the big “mo,” which of course stands for momentum. Momentum is what will enable us to shift into a higher gear. The question is–are we headed into another lackadaisical recovery year or are we going to gain this elusive momentum?
There are still potential speed bumps out there such as Europe and our own government’s mishandling of every financial deadline. On the other hand, other speed bumps seem to be smaller. For example, last year you heard about the massive shadow inventory of homes about to be foreclosed upon. Last year we also demonstrated that an improving real estate market will absorb this inventory. The pace of new home starts reported for December on Thursday tells us that we finished the year with momentum in place with regard to the housing markets. Every speed bump removed or lowered enables us to move faster. Our reading of economic growth for the 4th quarter due next week should be interesting in this regard. If growth was decent while the threat of the fiscal cliff hovered over the economy, this could mean that momentum is being achieved. What we would like is to be moving downhill for a while. It is tough to slow down when you are moving downhill.
The Markets. Rates were stable in the past week, but moved higher towards the end of the week. Freddie Mac announced that for the week ending January 17, 30-year fixed rates fell from 3.40% to 3.38%. The average for 15-year loans remained at 2.66%. Adjustable rates were also stable, with the average for one-year adjustables decreasing to 2.57% and five-year adjustables remaining at 2.67%. A year ago 30-year fixed rates were at 3.88%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates were flat to down a little this week amid reports that inflation remains contained. The overall producer price index rose 0.1 percent between November and December, below the market consensus forecast, and the consumer price index was unchanged. For the year as a whole, consumer prices rose just 1.7 percent in 2012, almost half that of 2011′s increase of 3.0 percent.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 18, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.11%||0.12%|
|1-year Treasury Security||0.14%||0.16%|
|3-year Treasury Security||0.39%||0.35%|
|5-year Treasury Security||0.79%||0.70%|
|10-year Treasury Security||1.89%||1.72%|
|12-month LIBOR||0.849% (Dec)|
|12-month MTA||0.175% (Dec)|
|11th District Cost of Funds||1.000% (Nov)|
With 11 months of data reported, 2012 will go down as a record year for favorable housing affordability conditions, and a great year for buyers who could get a home loan, according to the National Association of Realtors (NAR). NAR’s national Housing Affordability Index stood at 198.2 in November, based on the relationship between median home price, median family income and average interest rate. The higher the index, the greater the household purchasing power; record keeping began in 1970. An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to mortgage principal and interest payments. For first-time buyers making small down payments, the affordability levels are relatively lower. For all of 2012, NAR projects the housing affordability index to be a record high 194, up from 186 in 2011, which was the previous record. November’s reading was 2.5 index points below October, but up 1.5 index points from a year earlier. NAR projects the housing affordability index to average 160 during 2013, which means on a national basis that a median-income family would have 160 percent of the income needed to purchase a median-priced existing single-family home. Conditions vary widely, with the highest buying power in the Midwest. Even in the West, where the regional index is lower, they typical family is well positioned in most markets. Source: National Association of Realtors
The lower inventory of homes for-sale could bode well for the job market, according to a recent article written by Robert Dietz, an economist with the National Association of Home Builders, in U.S. News & World Report. “More jobs in the broader economy fuels more housing demand, and with more housing demand comes more jobs in the housing sector, especially in construction, an industry still languishing in the wake of the bust,” according to the article. Every new home built keeps, on average, three people employed full-time for a year. Therefore, Dietz estimates that if single-family housing starts rise from 530,000 this year to 640,000 in 2013, housing could generate more than 300,000 jobs for the economy next year. As builders get more confident about the housing market, they will ramp up construction. And rising home prices lately from low housing inventories is helping to increase their confidence. The existing-home inventory has decreased 47 percent as of October 2012 from its peak in July 2007, according to National Association of Realtors data. Source: US News & World Report
**You have gotten approved for a home loan and now you are just waiting to make it to the closing table. Make sure you don’t throw your loan approval into jeopardy by making one of these common mistakes–
- Making a big purchase. Avoid making major purchases, like buying a new car or furniture, until after you close on the home. Big purchases could change the your debt-to-income ratio that the lender used to approve the buyer’s home loan and could throw the approval into jeopardy.
- Opening new credit. Now isn’t the time to open up any new credit cards.
- Missing any payments. Home buyers need to be extra vigilant about paying all their bills on time, even if they’re disputing one.
- Cashing out. Avoid any transfers of large sums of money between your bank accounts or making any undocumented deposits — both of which could send up “red flags” to your lender. Source: Realty Times
The Truth About Qualified Mortgages (QM) and Why You Can Skip the Hype
Any Realtor who has closed a single transaction in the last 5 years knows that mortgage lending guidelines have become extremely stringent – many would venture to say too much so. Now with all of the press that the new Qualified Mortgage piece of the Frank Dodd Act, many Realtors are preparing for things to get even worse. I believe you really don’t have much to worry about. Why not? Simple. The 8 factors considered in the Ability-to-Repay determination highlighted to qualify as a Qualified Mortgage are already implemented, with the exception of a hard cap for the debt-to-income ratio of 43%. It should be noted though that for that hard cap, there is the ability to bypass it and still qualify, and that should be around for quite awhile yet (up to 7 years). Also, lenders have 12 months to implement the QM rules, so you can erase those fears of overnight sweeping guideline changes. The bottom line, focus on what you have been focusing on, enjoy the continued improvement to the housing market in 2013, and this shouldn’t really affect your world much right now.
This Week’s Mortgage Rates Forecast
Risks Favor: LOCKING
This week has a plethora of Economic data on the calendar which will make up for last week’s lull. Expect lots of daily volatility, with intra-day repricing possible all week. Rates shouldn’t venture too far, but I should be consulted for the best times to lock mortgage rates this week. Depending on when you lock, on the highs or the lows, you could vary your rebate by as much as .5% of your loan amount (that is $1,000 on a $200k loan amount). So even though I say that rates are stable, meaning that we won’t see large increases from where we are at now to the end of the week, there will be lots of volatility.
Source: TBWS Rate Alert
What happens when you get ready to fall down a cliff and when you close your eyes real tight — bracing for impact– nothing happens? Well, that is what happened last week when Congress magically caused the cliff to be moved. All along we indicated that the most probable result was for a very last minute agreement that would also kick the can down the road. Congress is so predictable because that is exactly what happened. The very last minute was defined as approaching midnight on New Year’s Day. And while the agreement addressed a variety of issues, it also left plenty more to argue over in about two months time when Congress must raise the debt ceiling and automatic cuts in government programs are scheduled to take place.
Of course, Congress could take care of that problem in January and avoid another last minute death-defying experience. But what is the fun in that? No, we are likely to go down to the wire again in a few months. For now, we all breathe easier. And while there was damage done in the form of consumers holding back on spending and businesses holding back on hiring, the employment report released on Friday tells us that this damage was not as strong as we would have expected. America is a resilient nation and the economic recovery remains on track despite games played in Washington. It may take a while for us to collect our breath, but we believe that we will carry forward towards a stronger 2013.
The Markets. Rates were again stable in the past week, however the report did not reflect a trend upwards toward the end of the week. Freddie Mac announced that for the week ending January 3, 30-year fixed rates fell one-tick from 3.35% to 3.34%. The average for 15-year loans also fell one-tick to 2.64%. Adjustable rates were up slightly with the average for one-year adjustables increasing to 2.57% and five-year adjustables rising to 2.71%. A year ago 30-year fixed rates were at 3.91%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates started the year near record lows which should continue to aid the ongoing housing recovery. New home sales rose in November to a two-year high and were up 15.3 percent from the previous November. Similarly, pending sales on existing homes increased for the third month in November to the strongest pace since April 2010.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated January 4, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.12%||0.14%|
|1-year Treasury Security||0.15%||0.18%|
|3-year Treasury Security||0.40%||0.36%|
|5-year Treasury Security||0.81%||0.67%|
|10-year Treasury Security||1.92%||1.65%|
|12-month LIBOR||0.864% (Nov)|
|12-month MTA||0.172% (Nov)|
|11th District Cost of Funds||1.000% (Nov)|
Homeowners fare well in the fiscal cliff deal passed by the Senate and House on Jan. 1. The American Taxpayer Relief Act of 2012 apparently extends a law that expired at the end of 2011, which allowed for the deductibility of mortgage insurance (MI) premiums, according to a research report from Isaac Boltansky with Compass Point Research & Trading. The law now applies to fiscal years 2012 and 2013. “The law dictates that eligible borrowers who itemize their federal tax returns and have an adjusted gross income (AGI) of less than $100,000 per year can deduct 100% of their annual MI premiums,” Compass Point said. “Certain borrowers with AGIs above $100,000 may benefit from the deductibility as well but are subject to a sliding scale. The tax break covers private MI as well FHA MI and VA and Rural Housing Service fees. In 2009, about 3.6 million taxpayers claimed the MI deduction,” the research firm added.
One of the more watched provisions of the fiscal cliff was the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec. 31. The fiscal cliff deal extends it for another year, meaning homeowners who experience a debt reduction through principal forgiveness or a short sale are exempt from being taxed on the forgiven amount. “The amount extends up to $2 million of debt forgiven on the homeowner’s principal residence,” Compass Point Research & Trading said. “For homeowner’s to qualify, their debt must have been used to ‘buy, build, or substantially improve’ their principal residence and be secured by that residence. The law, which was passed in 2007 with a 5-year sunset provision, will now be in effect until Jan. 1, 2014.” Another win for housing is a provision tied to the government’s plan to increase the capital gains tax rate from 15% to 20% for individuals who earn more than $400,000. While in theory, this is harder on higher-income homeowners, Compass Point sees a silver lining through an exclusion. Compass Point notes the law “states that only gains of more than $250,000 for individuals ($500k for households) are subject to taxes on the excess portion of capital gains. Point being, in order for an individual homeowner to be impacted by the increased capital gains tax rate they would need to have an adjusted gross income above $400,000 and gain more than $250,000 from the sale of the property. Since this exclusion threshold remained intact, the impact of the capital gains tax increase is limited.” Source: HousingWire
Homeownership will be a bit more affordable for eligible U.S. service members in 2013. The Department of Defense has increased its Basic Allowance for Housing (BAH) for 2013, giving most active duty personnel larger monthly stipends to offset housing payments. The Basic Allowance for Housing is a monthly, non-taxable stipend paid to many active duty military members. Previously, the Basic Allowance for Housing was known as Basic Allowance for Quarters (BAQ). BAH rates are based on average housing costs, and are updated annually with data from property managers nationwide. Current rental rates for townhomes, duplexes, apartment units, single-family homes and other residence types are considered in the Basic Allowance for Housing, as is other information culled from the American Community Survey, an annual U.S. Census Bureau publication. The Basic Allowance for Housing is payable to military members in non-government quarters and there are three factors which determine a military member’s individual Basic Housing Allowance: Pay Grade, Location and Number of Dependents. As would be expected, military members with higher pay grades (i.e. rank) receive a larger Basic Allowance for Housing. The same is true for military members living in “expensive” cities as compared to inexpensive ones. And, lastly, military personnel with dependents receive higher monthly allowances as compared to personnel without dependents. Beginning January 1, 2013, eligible service members will receive an average Basic Allowance for Housing increase of 3.8%. Personnel in some areas will receive an increase which is larger than the national average; some will receive less. For more specific information regarding the BAH, the following links will connect you with the actual data for each metropolitan area in the United States (Sources: Daily Mortgage Reports and VA):
2012 may be remembered as the year home prices started to rise again but owning a home remains significantly cheaper than renting in the Chicago area.
The cost of renting was about 31% higher than the average mortgage payment here in the third quarter according to a report by Deutsche Bank. That disparity, which includes property taxes, insurance, and other homeowner costs, was greater in the Chicago area than in all but 7 metropolitan areas tracked by Deutsche Bank.
That spread represents the record high rents landlords are able to charge in the wake of the recent housing bust.
So what is holding back buyers from purchasing a new home?
There are several factors. The obvious ones are uncertainty in the economy and the perception of the lack of available mortgage funds. The key factor though seems to be the perception that if they buy a place, they will need to stay in it a long time.
Owning could remain less expensive in the Chicago area for a while longer, yet landlords soon may have a harder time hiking rents. Just in downtown Chicago alone, new development will add over 4700 new apartment units in the next 2 years.
So, before you consider renting, look at your purchase options as it can save you thousands over the next few years. Source: Chicagorealestatedaily.com
Let’s play a game. Below I list six actual news headlines and it’s your job to guess what year they were written.
- “Refinance your home now” - Kiplingers.com
- “Tips for Refinancing your Mortgage” - New York Times
- “It’s now Literally the Best Time Ever to Refinance Your Mortgage” – BusinessInsider.com
- “Mortgages: Why it may be time to refinance Your Loan” – Wall Street Journal
- “The Great American Refinancing” - Barrons Magazine
- “Is Now a Good Time to Refinance” – Smart Money Magazine
If you answered 2012 for all of them, it would be a perfectly logical guess, as all of these articles would certainly pertain to today’s environment. But, if you answered 2008, 2009, 2010, 2010, 2011, and 2012 you would score perfectly. Yes, these headlines are actually listed in order of appearance by year starting in 2008!
In hindsight, it is obvious that none of the articles are correct. 30 year mortgage rates have consistently fallen for years, making now actually the best time in a generation (so far) to refinance. This month the rate is around 3.375% and continues.
What’s all this mean? The right time to refinance is determined by your individual circumstances. Simply stated, if it makes financial sense, do it! Give me a call and we can discuss your options.