The data comes from the Federal Reserve's quarterly survey to its member banks. The Fed asks senior bank loan officers around the country to report on "prime" residential mortgage guidelines over the most recent 3 months and whether they've tightened.
For the period October-December 2009:
Roughly 1 in 4 banks said guidelines tightened
Roughly 3 in 4 banks said guidelines were "basically unchanged"
Just 2 of 53 banks said its guidelines had loosened.
Combine the Fed's survey with recent underwriting updates from the FHA and generally tougher standards for conventional loans and it's clear that lenders are much more cautious about their loans than they were, say, in 2007.
Today's home buyers and would-be refinancers face a bevy of new borrowing hurdles including:
Higher minimum FICO scores
Larger downpayment requirements for purchases
Larger equity positions for refinances
Lower debt-to-income ratios
So, if you're on the fence about whether now is a good time to buy a home, or make that refi, consider acting sooner rather than later. It doesn't necessarily matter that mortgage rates are low, or that there's an up-to-$8,000 home purchase tax credit for households that qualify. With each passing quarter, fewer and fewer applicants are eligible to take advantage.
Mortgage markets improved last week on domestic jobs data and international banking concerns. The news triggered buying in the bond market and, as a result, conventional, FHA and VA mortgage rates improved for the 4th consecutive week.
Mortgage rates are now at a 6-week low but probably shouldn't be. It underscores just how important global events can be to U.S. mortgage markets.
For example, corporate earnings continue to improve and key elements of the economy are strengthening. Even the Federal Reserve acknowledges this. In most circumstances, that would be a boon for the stock markets and bond markets would suffer, including mortgage bonds.
Last week, that wasn't the case.
Early in the week, as (1) China tightened its monetary policy, (2) Greece did little to quell lingering default fears, and (3) Spain raised its deficit forecasts, global investors sought to reduce their collective risk exposure. For safety of principal, many sold some of their more aggressive positions and moved the cash proceeds into the U.S. bond market -- which includes mortgage bonds.
On Wall Street, this type of trading pattern is called a "flight-to-quality". Because mortgage bonds are backed by U.S. government entities, the debt is considered to be ultra-safe. Last week's extra demand for bonds helped to push prices up and mortgage rates down.
And that was before Friday's weak jobs report. Although the Unemployment Rate fell to 9.7%, the government reported a net loss of 98,000 jobs last month and this, too, helped mortgage rates tick lower.
This week, we'll hope for momentum to continue.
There's very little domestic news to move rates this week so keep an eye on the global market for similar stories like what we saw last week. Or, if you're not sure what to look for, just give me a call or send me an email and I'll be happy to watch the markets and mortgage rates for you.
As mortgage lenders tighten approval standards nationwide, the importance of a good credit score is rising. Credit scores not only make the difference between a mortgage approval and mortgage turn-down, but they also play a large role in determining your actual mortgage note rate.
Asking creditors to lower credit balances prior to closing
In general, a 740 FICO will insulate a borrower from the higher costs and/or rates associated with low credit scores. Below 740, though, every 20 points adds to the damage. Watch the video and apply what you can to your own situation. The more you know, the more you can save.
Posted by Tiffany Taylor on February 05, 2010 | Comments (0) | Tags: FICO
On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls data from the month prior. The data is more commonly known as "the jobs report" and it swings a big stick on Wall Street.
Especially now -- many analysts believe job growth is tightly linked to the future of the U.S. economy.
Therefore, when January's jobs report hits the wires at 8:45 AM ET tomorrow, home buyers would do well to pay attention. A net job reading that is much higher (or lower) than Wall Street's expectations can make a serious change in home affordability.
Wall Street expects that the economy added 13,000 jobs last month. It would mark the second time in 3 months that the jobs report showed a net monthly gain.
Jobs matter to the economy for a lot of reasons, but one of the biggest is that when Americans are working, Americans are buying and consumer spending accounts for 70 percent of the economy.
Job growth spurs the economy and draws money to the stock market. Unfortunately for rate shoppers, that kind of stock market growth happens at the expense of the bond market which is where mortgage rates are made.
Good jobs data usually means higher mortgage rates.
Also, job growth can lead to higher home prices. This is because working homeowners are less likely to default on a mortgage versus non-working homeowners. In this way, job growth helps hold foreclosures to a minimum which, in turn, suppresses the housing supply.
Less supply means higher prices for home buyers.
Mortgage rates are idling this morning in advance of tomorrow's data. If you're shopping for a mortgage rate, the prudent play may be to lock your rate before the jobs data is released. A jobs figure that's higher than the 13,000 expected could cause rate to rise sharply.
A Pending Home Sale is a home that is under contract to sell, but not yet sold. It's a figure compiled by the National Association of Realtors® using sales data from over 100 regional listing services and more than 60 large brokerages around the country.
Because each pending sale is a true measure of sales activity, the Pending Home Sales Index is purported to be the most reliable forward-looking indicator for housing.
Recent data supports this hypothesis.
After Pending Home Sales plunged 16 percent in November, Existing Home Sales fell by 17 percent in December. Based on the most recent Pending Sales Index, therefore, we can expect January's closed sales to be similarly level.
For home buyers , this is all a bit of good news. Home prices are based on the supply-and-demand balance that exists between buyers and sellers. When buyers outnumber sellers, like they did through most of 2009, home supplies dip and, in fact, the national home inventory nearly halved during the 12 months ending November 2009.
With fewer homes for sale, multiple-offer situations were almost commonplace and home values rose as result.
Activity has since slowed, however, and fewer buyers are in today's market. The supply-and-demand equation has shifted back some. In December, home supplies rose for the first time in 7 months and January will likely show the same.
The net result: Home buyers have more homes from which to choose and that can create negotiation leverage for better prices and better concessions.
With mortgage rates still low and a looming deadline on the homebuyer's tax credit, market activity should be strong between now and April. Take your time and bid right. And when you're ready, be ready. The best deals likely won't last.
A "Short Sale" is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.
By way of example, a Short Sale may be appropriate for a home seller whose mortgage balance is $250,000 but whose home wouldn't sell for more than $220,000. Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.
Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan. Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.
For this reason, Short Sales are sometimes considered "the economical alternative" to default.
The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone -- speaking with a real estate agent about the proper protocol is usually the best place to start. And sellers should be aware of how a Short Sale on their credit can impact future borrowing.
Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.
Usually, events like these draw money away from the bond markets and into the stock markets and Wall Street preps for better corporate earnings. The movement pressures mortgage rates to rise.
Last week, however, different stories trumped the headlines including a report from Standard & Poor's that said U.K. banks are no longer counted among the world's most stable. This research, in particular, triggered a flight-to-quality among investors that pumped the U.S. dollar and sparked new demand for mortgage bonds.
It's one reason why we ended the week on a rally and it just goes to show how unpredictable mortgage rates can be.
This week figures to be a challenge, too.
First, we start the week with key inflation data. When inflation runs hot, it's usually bad for mortgage rates. Inflation is expected to be tame, however -- a point the Fed made several times in its press release last week. That said, inflation data is closely watched by markets and can make a big impact on rates.
Then, on Wednesday, ADP releases its private sector job report. The ADP data is a precursor to the government's own Non-Farm Payrolls report which is due to hit Friday. ADP is expected to show a net loss of roughly 85,000 jobs. Depending on where the actual numbers comes in, mortgage rates could wiggle a bit.
If the ADP report shows much fewer than 85,000 jobs lost, expect mortgage rates to rise. The same is true for Friday's job report. A miss on expectations will cause mortgage to ratchet higher.
Since peaking on the last day of December, mortgage rates took a slow, steady descent through January. They've have taken back close to two-thirds of December's overall losses. This week, rates could fall some more, or they could bounce back up. The most prudent time to lock would be prior to Tuesday's closing.
After that, the respective jobs reports will take over and rates could go either way with force.
National home prices are at their highest point since February 2009.
But before we look too much into the FHFA's Home Price Index, it's important that we're cognizant of its shortcomings; the most important of which is its lack of real-time reporting.
According to the National Association of Realtors™, 80% of purchases close within 60 days. As a result, because of its two-month delay, the Home Price Index report actually trails today's market data by an entire sales cycle.
This is one reason why home values appear to be rising even while new data shows that both Existing Home Sales and New Home Sales fell flat last month. The home valuation report is using data from November; the sales reports are using data from December.
The Home Price Index is a trailing indicator and next month, as the Spring Market gets underway, the government will be reporting data from the holidays.
All of that said, however, long-term trends do matter in housing and the Home Price Index has shown consistent improvement over the last 10 months. In many markets, home sales are up, home supplies are down, and values have increased. This trend should continue into the early part of 2010, at least.
If you're wondering whether now is a good time to buy a home , consider low prices, cheap mortgages and an available tax credit as three good incentives. By May, none of them will likely be available.
The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.
There was no mention of the housing market's strength. The last 3 statements from the Fed included that specific verbiage.
It’s the fifth straight statement in which the Fed spoke about the economy with optimism. This should signal to markets that 2008-2009 recession is over and that economic growth is returning to U.S. economy.
The economy isn’t without threats, however, and the Fed identified several in its press release, including:
Credit remains tight for consumers
Businesses are reluctant to hire new workers
Housing wealth is down
The message’s overall tone, however, remained positive and inflation appears is still within tolerance.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to wind down its $1.25 trillion commitment to the mortgage market by March 31, 2010. This is noteworthy because Fed insiders estimate that the bond-buying program suppressed mortgage rates by 1 percent through 2009.
Mortgage market reaction to the Fed press release is, in general, negative. Mortgage rates are rising this afternoon.
The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It's the first of 8 scheduled meetings for the policy-setting group in 2010.
The group adjourns at 2:15 PM ET.
As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country's current economic condition, and the outlook for the near-term future.
The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up. Every word, sentence and phrase is carefully disected in the hope of gaining an investment edge over other active traders.
It's for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically rebalancing its bets.
Today should be no different.
The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what it does.
After the Fed's last meeting in December, it made several observations:
The jobs market is getting "less worse"
The housing sector is making improvements
Financial markets are stabilizing further
The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead. Furthermore, inflation remains in check.
As compared to December's press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates to rise as Wall Street moves its money from bonds to stocks.
Conversely, reference to slower growth in 2010 should lead rates lower.
We can't know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone's guess.
Posted by Tiffany Taylor on January 27, 2010 | Comments (0) | Tags: FOMC
Just one month after from blowing away Wall Street, December's Existing Home Sales hit the skids, shedding nearly 17 percent and falling to a 4-month low.
Don't be alarmed, though. The plunge was expected. And not just because Pending Home Sales cratered last month.
When November's Existing Home Sales surged, it was clear to observers that an expiring $8,000 federal tax credit was the catalyst. At the time, the tax program was slated to expire November 30 and the looming deadline pushed a lot of would-be buyers from a December time frame into November.
The expiration date has a cannibalizing effect on December's sales figures. It was only later that Congress extended the tax credit to June 30, 2010.
So, with home sales plunging in December, it's no surprise that home supplies rose for the first time in 9 months. Home Supply is calculating by dividing the number of homes for sale by the current sales pace.
Despite December's Existing Home Sales report appearing shaky, it's actually terrific new for home buyers.
See, for the past few months, as housing has been improving, sellers nationwide have been bombarded by messages of "hot markets" and rising home prices by the media. Psychologically, a seller is more likely to hold firm on price if he believes the housing market is improving and now December's data is deflating that argument.
This is why we say there's always two sides to a housing story -- the buyers' side and the sellers' side. And, usually, what's good for one party is bad for the other. It's what we're seeing now.
Because of soft data like December's Existing Home Sales, buyers may retake some negotiation leverage that's been lost since Spring 2009, helping to improve home affordability and, perhaps, spur more sales.
Conforming and FHA mortgage rates improved last week on the combination of weaker-than-expected economic data and new anti-banking rhetoric from the White House.
The S&P 500 shed nearly 4 percent in its worst weekly showing since October 2009 as all 10 sectors fell. As the money left stock markets, it made its way to bonds -- including the mortgage-backed variety.
As a result, mortgage rates fell for the third straight week.
Since shedding 300 basis points in December, mortgage bond pricing has recovered a bit more than half of those losses. It's helping with home affordability and opening new refinance opportunities around the country.
This week, though, mortgage rates could rise back up. There's a lot going on.
First, on Monday, the December Existing Homes Sales report will be released. The report is expected to be extremely weak as compared to November. This is because of a combination of factors including:
The initial tax credit expiration date of November 30, 2009
Sharply rising mortgage rates throughout the month of December
A general slowdown from the holidays and from the weather
Therefore, don't be surprised by the newspaper headlines you see Tuesday morning.
Other data this week includes the Case-Shiller Index -- a measure of home prices nationwide -- and the New Home Sales report. The Case-Shiller Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same. New Home Sales should be similarly strong.
The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely. The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed's post-meeting press release.
What the Fed says about the economy will be much more important that what it specifically does about the economy for now. If the Fed says the economy is growing as expected, look for mortgage rates to rise. Conversely, if the Fed says the economy is at risk, expect mortgage rates to fall.
The safest rate lock strategy this week is to lock your mortgage rate before the Fed's 2:15 PM ET adjournment Wednesday. Rates will be bouncy all week, but once the Fed's press release hits the wires, it's anyone's guess what will happen.
Posted by Tiffany Taylor on January 25, 2010 | Comments (0) | Tags: FOMC
A "Housing Start" is a privately-owned home on which construction has started. It's an important gauge of housing health because it tracks new housing stock nationwide.
The news is mildly disappointing but not too bad. The likely cause for the Housing Starts drop is December's rough weather conditions. It's tough to break ground when Mother Nature won't coordinate and last month was especially hazardous in a lot of parts of the country.
More cheery, however, is that for the second straight month, Housing Permits exploded.
A housing permit is an certification from local government that authorizes construction. After posting a 7 percent gain in November, permits rose by another 8 percent in December.
It's a signal that housing is, indeed, in recovery -- despite the falling number of actual starts. More permits mean that builders plan to bring more homes on the market for what's expected to be a very busy spring home-shopping season.
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Therefore, Housing Starts should start rising soon anyway.
For home buyers, the news couldn't be better.
With more homes coming online, competition among home sellers should increase, and that will suppress the rise in home prices nationwide.
It's basic economics. When home supplies grow faster than home demand, prices fall.
Securing an FHA mortgage is about to get more expensive.
In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group's portfolio risk while strengthening its overall financials.
Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
Minimum downpayments for applicants with sub-580 FICOs are rising to 10 percent
Seller concessions are being limited to 3%, down from today's allowable 6%
Furthermore, the FHA has appealed to Congress to raise an FHA borrowers' monthly mortgage insurance premiums.
To read the FHA's statement, it's clear what the group is trying to balance. On one side, the FHA wants to provide affordable financing to families that need it. That's its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans.
To that end, the FHA is stepping up its enforcement of "bad lenders" in hopes of stopping problems where they start.
Also in its new policies, the FHA is introducing a "termination clause". If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages.
As a result, homebuyers should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don't want to do "bad loans". Lenders are incented to turn down at-risk applicants and, already, we're seeing examples of this. Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum.
Some have other guideline overlays, too.
The FHA's new guidelines don't go into effect until spring. So, between now and then, the old guidelines will apply. Therefore, if you know you're going to need an FHA home loan in the next few months, consider moving up your time-frame.
If nothing else, you'll save some money at closing.
Posted by Tiffany Taylor on January 21, 2010 | Comments (0) | Tags: FHA
November 6, 2009, Congress voted to extend and expand the First-Time Home Buyer Tax Credit program. There's 100 days left to claim it.
The expiration date of the up-to-$8,000 tax credit has been pushed forward to spring, requiring homebuyers to be under contract for a home no later than April 30, 2010, and to be closed no later than June 30, 2010.
In addition, "move-up" buyers were also added to the program's eligibility list meaning you don't have to be a first-time home buyer to be eligible for the tax credit. If you've lived in your home for 5 of the last 8 years, you meet the IRS requirements.
Move-up buyers are capped at a total tax credit of $6,500.
The tax credit's basic eligibility requirements remain the same:
You can't purchase the home from a parent, spouse, or child
You can't purchase the home from an entity in which they're a majority owner
You can't acquire the home by gift or inheritance
All parties to the purchase must meet eligibility requirements
The new law includes some notable updates, however.
First, the subject property's sales price may not exceed $800,000. Homes sold for more than $800,000 are ineligible. And, also, household income thresholds have been raised to $125,000 for single-filers and $225,500 for joint-filers.
And lastly, don't forget that the program is a true tax credit -- not a deduction. This means that a tax filer who's eligible for the full $8,00 credit and whose "normal" tax liability totals $5,000 would receive a $3,000 refund from the U.S. Treasury at tax time.
The complete list of qualifying criteria is posted on the IRS website. Review it with a tax professional to determine your eligibility. Then mark your calendar for April 30, 2010.
There's just 100 days to go.
Posted by Tiffany Taylor on January 20, 2010 | Comments (0) | Tags: IRS
Mortgage markets showed little conviction last week, carving out just a narrow trading channel. There was very little data on which for markets to move, leaving mortgage rates momentum-bound.
Luckily for rate shoppers, mortgage rate momentum was favorable. Rates were slightly lower Monday through Thursday before breaking downward Friday afternoon. Home shoppers this past weekend caught a nice break.
Last week marked the second straight week in which mortgage rates fell.
This week, in holiday-shortened trading and with little economic data set for release, expect mortgage rates to again move on momentum. The biggest report of the week is Wednesday's Producer Price Index.
Producer Price Index is important to mortgage rates because of its role in inflation. PPI is akin to a Cost of Living-type measurement, but for business. As business costs rise, the thought goes, it's not long before consumer costs rise, too. Businesses eventually pass on costs, after all.
In this manner, a rising Producer Price Index can foreshadow rising consumer prices, and, therefore, inflation.
Inflation is awful for mortgage rates.
PPI expectations have revised downward this month, especially because last week's data showed a deceleration in consumer prices nationwide. If PPI isn't as weak as expected, mortgage rates will rise.
Other influential data this week includes Housing Starts, Consumer Confidence and Initial Jobless Claims.
So far, 2010 has been for mortgage rates around the country. If you're in need of a rate lock, this week may be a good time to take one.
Mortgage rates are dropping this morning on weaker-than-expected Retail Sales data from December. Lower rates means more bang for your home-buying buck.
Excluding motor vehicles and parts, December's "ex-auto" sales receipts were down roughly $500 million from November. Analysts had expected receipts to grow.
The relevance of Retail Sales to home affordability isn't obvious, but it's definitely logical.
Retail Sales is directly related to consumer spending and consumer spending accounts for the majority of the U.S. economy. When consumer spending slows, the economy often does, too. It leads investors to seek out "safe" investments.
It's the reason why stock markets often drop on weak economic data -- stocks are among the riskiest investment classes available.
Conversely, the best place to find safety is in the market of government-backed bonds. This world includes products like U.S. Treasuries and many of the mortgage-backed bonds that help set mortgage rates. Weak economic data puts mortgage bonds in demand.
For rate shopper, this is good news. More demand for mortgage bonds causes mortgage rates to fall. Mortgage rates are lower this morning because Wall Street is shedding some risk.
December's Retail Sales report closes out a year of generally-weak data. 2009 marks just the second time that Retail Sales fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.
For home buyers around the country, though, today may represent an opportune time to lock a mortgage rate. Housing data is still improving and other economic indicators are showing strength. Soon, Wall Street will shift from a "safe" mentality and move toward risk.
Like real estate, it appears that foreclosure activity is a local phenomenon, too.
As reported by RealtyTrac.com, more than half of all foreclosure-related activity in 2009 came from just 4 states:
California
Florida
Arizona
Illinois
More than 1.4 million filings made in 2009 are attributed to the above states. Furthermore, each ranks in the Top 10 for 2009 Foreclosures Per Capita.
The other states are Nevada, Utah, Georgia, Idaho, Michigan and Colorado.
Versus 2008, foreclosures are up 21 percent nationwide and that's a big number, but a deeper look at RealtyTrac's annual reports reveals a more positive undertone on the housing market.
40 states fell below the national Foreclosures Per Capita average in 2009
Foreclosure activity fell on an annual basis in 10 states as compared to 2008
Foreclosures are still prevalent, though, and buying homes in foreclosure continues to be big business. First-time buyers, move-up buyers, and real estate investors each are bidding aggressively.
First, properties are often sold "as-is" and the cost of repairs may unwind the home's status as a "value buy". Furthermore, a lender may require specific fixes to be made prior to closing and that, too, costs money.
Second, buying a foreclosed home isn't as streamlined as buying a "normal" home. Closing on a foreclosure can be a 120-day process or longer. A 4-month time-frame may not fit your schedule.
And, third, finding foreclosures can be difficult. Despite the growth in foreclosure search engines, it still takes a good real estate agent to uncover the best homes at the best prices.
Read the complete foreclosure report and take a peek at RealtyTrac's foreclosure heat maps. If you like what you see, talk to your real estate agent about what to do next.
There's still good deals in the foreclosure market -- you just have to know where to find them
As the housing market improves across the country, certain cities are emerging as relative bargains. Some areas, like Miami, were hit hard by the recession, and other areas are buoyed by good school systems and strong labor markets.
In this 5-minute video from The Today Show, 10 cities are highlighted for their home prices. And they're not "small towns", either.
Among the featured cities:
Miami, Florida
Akron, Ohio
Tuscon, Arizona
Minneapolis, Minnesota
Trenton, New Jersey
Now, this piece is about finding gems on a national scale. They exist locally , too. You just need to know what to look for.
With mortgage rates low and tax credits available, it's not likely that bargains will last.
Despite the headlines, it's important to remember that December's jobs report wasn't all bad news.
Sure, the economy shed 85,000 jobs last month and the Unemployment Rate failed to dip below 10%, but for home buyers and rate shoppers , the news was just fine.
The soft employment data led mortgage rates lower, making homes more affordable for buyers.
There is two sides to every economic coin.
Since early-2008, the U.S workforce has been closely tied to home financing. As the economy slowed and jobs were lost, Wall Streeters pulled money from the risky stock markets and moved it to of the relative safety of bond markets, instead.
Safe haven buying led mortgage bond prices higher which, in turn, caused rates to fall. Mortgage rates fell to 6 all-time lows in 2009. In a related statistic, 4.2 million jobs were lost last year.
And this is why Friday's non-farm payrolls report was so good for buyers.
See, in November, the economy added new jobs for the first time since 2007, housing looked strong, consumer confidence was growing. The safe haven buying reversed and mortgage rates took off. Analysts believed the nation's economic turnaround was complete.
But now, after December's jobs report returned to the red, Wall Street is forced to rethink its position. Safe haven buying is back and mortgage rates are lower because of it.
Over the next few months, expect a lot of this back-and-forth action in rates. In general, positive news for the economy will be met with higher mortgage rates and negative economic news will be met with lower mortgage rates. There will be exceptions, but the general rule should hold.
Data was sparse through 2010's first trading week last week, setting the stage for a week of momentum trading.
In up-and-down trading, mortgage pricing improved overall but the best rates of the week didn't last long.
Rates improved Monday and Tuesday as an oversold market corrected itself to better price points. Then, in anticipation of the December jobs report, rates worsened Wednesday and Thursday. Friday, after the jobs report was released, pricing proceeded to carve out a huge range before settling unchanged.
On average, lenders issued new rate sheets every few hours last week. It was a difficult week to shop for mortgages.
Unfortunately, this week doesn't figure to be much better.
For the second straight week, the economic calendar is bare. Traders -- like last week -- will be forced to rely on "gut feel" to make their trades. That rarely bodes well for shoppers. Especially because traders are facing a mortgage market in the midst of a terrible losing streak.
Since reaching an all-time low December 1, 2009, 30-year fixed rate mortgages have worsened by 300 basis points, or 3 percent.
To a homeowner or rate shopper , the math of 300 basis points looks like this:
Today, the same 4.625 percent mortgage rate requires 3 points
1 point is equal to 1 percent of your loan size.
Last month's worsening is the worst 1-month deterioration in consumer mortgage rates from all of 2009.
If you're hoping for rates to fall back to early-December levels, know that it is possible. For this week, here's some things that could push rates in the right direction:
3 Fed members are speaking. Each mention of economic under-performance in 2010 will be good for rates.
Retail Sales data is released Thursday. If the numbers are weak, mortgage rates should improve.
Consumer confidence surveys are released Friday. Lower confidence levels should help rates fall.
Be ready to lock at a moment's notice this week. Rates may rise or fall, but markets are positioned toward the former.That's where momentum is pointing as of the Market Open today.
Keep an eye on rates and your loan officer on speed dial. Once the mortgage market starts breaking, it's expected to break quickly.
FHA home loans are federal assistance mortgages made by lenders, and backed by the government. The FHA doesn't make loans to homeowners -- it insures loans made to homeowners by federally-qualified lenders.
By all accounts, FHA home loans are surging in popularity.
A major reason for the increase can be tied to guidelines.
As compared to its conforming mortgage cousins Fannie Mae and Freddie Mac, FHA home loans have lower downpayment requirements and looser credit standards. The FHA allows downpayments of 3.5 percent and Fannie Mae and Freddie Mac do not, as an example.
Another reason is that FHA home loans aren't subject to credit score fees the way that conforming mortgages are. Through Fannie or Freddie, a home buyer with a 650 FICO and 20% down is subject to 3% in risk fees. Via the FHA, the fee is zero, making FHA the better "deal".
The FHA published its 2010 loan limits. There's no change from 2009.
We say "base" because these loan limits don't apply to all areas equally. Higher-cost regions get higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $729,750 in 2010, and there are special exceptions made for Alaska and Hawaii.
The official FHA announcement included a complete, county-by-county FHA loan limit list. The first spreadsheet shows each county at or above the $729,750 maximum; the second list is everyone else.
If your home's county is on neither list, use the "base" numbers above.
Posted by Tiffany Taylor on January 08, 2010 | Comments (0) | Tags: FHA
Both mortgage rates and home affordability took a turn for the better Wednesday after the Federal Reserve released its December 15-16, 2009 meeting minutes.
The Fed Minutes is a follow-up piece to the post-FOMC meeting press release. But whereas the press release is succinct and to-the-point, the minutes are lengthy and often meandering.
As a comparison, December's press release contained 535 words. December's minuteshad 6,260.
But these "extra words" aren't superfluous. They're actually very important to homeowners. Because the Federal Reserve's internal debates help to shape Wall Street expectations, it doesn't take much for those conversations to have a trickle-down effect on Main Street.
For example, after the December meeting, the Fed said that economic growth is steady, inflation is in check, and an orderly wind-down of mortgage market support was underway. A look at the minutes, though, showed some disconnect.
Some Fed members believe rising commodity prices could lead to stronger-than-expected, and others think that improvement is housing could be "undercut" by a pull-back in government stimulus.
Overall, the Fed appears optimistic about the economy, but not as optimistic as on December 16. Mortgage markets responded favorably to the minutes and mortgage pricing improved.
Although rates remain higher as compared to early-December, pricing has been on a good run this week. If you're under contract for a home or just looking to refinance, now may be a good time to lock.
Posted by Tiffany Taylor on January 07, 2010 | Comments (0) | Tags: FOMC
Just one month after touching a 3-year high, the National Association of Realtors® Pending Home Sales index plunged in November. A "pending" home sale is a home that is under contract to sell, but has yet to close.
The 16 percent drop marks the first retreat in Pending Home Sales since January of last year.
The weak Pending Home Sales data is an indication that Existing Home Sales data will be soft this month. This is because, historically, 80 percent of Pending Home Sales convert to "closed sales" within 60 days, and most of the rest close within 120.
With Pending Home Sales down, the housing market should lose some of its momentum. For today's home buyers, this kind of slack can represent a terrific opportunity.
Home prices are a function of supply and demand; of buyers and sellers. When buyers outnumber sellers, competition leads to bidding wars, ultimately, and higher home prices overall. The imbalance can also create a sense of urgency that results in over-paying for a home.
When buyers are sparse, on the other hand, the psychology of real estate shifts.
Home sellers are keenly aware of foot traffic and requests for second and third showings. Without buyers, their homes can't sell. They also note a lack of general feedback from the market.
It's at this point that seller fear can creep in and it becomes a buyer's best time to buy.
Based on November's Pending Home Sales data, it's clear that home sellers are in abundance right now. Home buyers have leverage.
It may not last.
With mortgage rates easing lower this week, the federal home buyer tax credit still in effect, and the Holiday Season officially over, buyers are getting back to business everywhere.
Plus, with the tax credit deadline of April 30, 2010 fast approaching, buyer activity should increase over the next 4-6 weeks.
The market looks ripe for a buy but don't rush it. Take your time and bid right. But when you're ready, be ready -- once the market momentum shifts back to sellers, you might lose all that leverage you built up through the winter.
Given how varied their outlooks, it's clear that the professionals have no better view of the future than the amateurs. An expert can make an educated guess, but it's a guess nonetheless.
Last year, Wall Streeters predicted a 25% pullback in home prices. 12 months later, we know prices didn't fall. Wall Street also predicted higher mortgage rates for 2009. That prediction was fulfilled.
There's a lot of talk on CNBC and elsewhere about what's coming in 2010. Before you take those predictions to the bank, just remember that analysts do a much better job interpreting data from the past than projecting it into the future.
The only thing that's certain right now is that mortgage rates are historically low, the government is giving tax credits to qualified buyers, and there's a lot of good "deals" in housing. Make the most of what's out there today because it will take 12 months for us to look back and know which predictions were right and which were wrong.
Until then, predictions are just opinions and guesses.
Mortgage markets were relatively flat last week during holiday-shortened trading. After starting the week with a Monday surge higher, mortgage rates settled down through Tuesday and remained somewhat flat into the early-close for New Year's Eve.
However, as compared to the 4-month low posted post-Thanksgiving, conforming mortgage pricing has now worsened by more than 300 basis points. In English, that means that a December 1 mortgage rate quoted with zero points is available today at a cost of 3 points.
1 "point" is equal to 1 percent of how much you borrow.
If you were shopping for homes or rates last month, you no doubt noticed that pricing zoomed higher to close out 2009. How 2010 starts is anyone's guess. This week will hold the answer.
It's a week light with data, but heavy on importance. The biggest news comes Friday in the form of the December employment report.
Last month, the Unemployment Rate fell for just the second time in 2 years and net job gains nearly turned positive. Both points were bad for mortgage rates because a weak economy has helped keep rates down. Evidence of improvement, therefore -- at least according to Wall Street -- is reason for reversal.
This month, analysts expect a net job gain of zero. If they get it, the psychological effect of the data should cause stock markets to rise and mortgage markets to sink.
A worsening market is bad for rates.
Other data to watch this week is Tuesday's Pending Home Sales report and Wednesday's FOMC November Minutes release. Both can forcefully impact markets and rates.
Today is January 4 -- there's a lot of 2010 to go. However, that won't stop Wall Street from trying to figure it out. As the stock market rises and falls this week, the bond market will likely be in tow. Abrupt movements mean changing mortgage rates and we'll see more of our fair share of it over the next few weeks.
If you're quoted a mortgage rate this week that fits your budget, consider locking it in. Rates may fall in 2010, or they may not. It's a gamble on which you don't want on the wrong side because when rates do rise, they're likely to rise quickly.
Markets can't sustain rates like this in an expanding economy.
More positive signals from housing -- home values are still on the rise.
According to the Federal Housing Finance Agency, after posting its first quarterly increase since 2007 this past September, the Home Price Index rose by another 0.6 percent in October.
Prices are up in 4 of the last six months.
But before we take the stats to the proverbial bank, it's important that we recognize the Home Price Index for its shortcomings.
HPI only accounts for homes with mortgages backed by Fannie Mae or Freddie Mac
HPI only accounts for re-sold homes -- newly-built homes are excluded
HPI aggregates national data whereas real estate markets are local phenomena
On a broad scale, the Home Price Index can be useful, but it doesn't specifically apply to any specific U.S. market. For that, analysts tend to turn to the Case-Shiller Index, a privately-produced report that assesses home values in 20 cities nationwide.
The good news for home sellers is that Case-Shiller's most recent report corroborates the government's conclusion -- home values are creeping back.
Home buyers should pay attention. When public and private sector data is in accord, markets tend to go along and, looking back, housing likely bottomed in February 2009. Since then, home sales are up, home supplies are down, and values have increased in most U.S. markets. Furthermore, so long as mortgage rates remain low and government stimulus is in place, the trend should continue through at least the first quarter of 2010.
If you're on the fence about buying a home right now, or wondering about timing, consider your options vis-a-vis today's market. Into the new year, homes won't likely be as cheap to buy, nor to finance.
It's not only the real estate markets that differ from town to town -- the Cost of Living does, too.
Insurance costs, tax bills and just plain, day-to-day living will dent a household budget differently depending on where that household is. It can be a nerve-wracking fact for families moving across state borders.
As an aid for the budget-aware, Bankrate.com keeps a Cost of Living Comparison Calculator on its website. The calculator asks 3 questions: (1) Where do you live now, (2) To where you are moving, and (3) What is your salary. It then spits out a detailed, 58-item cost comparison list between the two cities.
Some of the key costs compared include:
Everyday groceries
Energy bills
Routine healthcare
Home ownership
Clothes
Sporting goods
The Cost of Living Comparison Calculator is thorough, with data culled from the ACCRA. You'll be surprised at how granular the list can get. On the ACCRA website, you can buy a similar report for $5.
Mortgage markets made a 4-day losing streak last week on thin holiday volume and overall economic optimism. It was awful news for rate shoppers because mortgage rates were higher every day last week.
The holiday-shortened week marked the third out of 4 during which rates worsened and last week's action happened to be especially harsh. Monday's action was the worst for rates since July, for example.
Tuesday's was only slightly less worse.
Today, conforming, 30-year fixed mortgage rates have reached at a 15-week high -- well off the lows set in early-December.
Normally, when mortgage markets worsen this badly, this quickly, it's because of strong economic data, or growing inflationary expectations. Last week saw neither.
And yet -- stock markets gained. All 10 sectors improved and they did so at the expense of mortgage bonds.
This week is again holiday-shortened so expect the same low-volume, high-volatility trading as last week. There's few data releases save for Tuesday's Case-Shiller Index. Therefore, watch for momentum trading in either direction.
Markets close early Thursday and re-open Monday, January 4, 2010. If you need to lock a rate, make sure of your loan officer's hours.
One day after November's Existing Home Sales report blew away estimates, the Census Bureau's related New Homes Sales report failed to impress.
A "new home" is a home that is newly-constructed; not bought as a resale.
In a lackluster showing, New Home Sales dropped 11 percent in November, falling to the lowest levels since April. Furthermore, the all-important "months of supply" climbed by a half-month to 7.9.
The press pounced on the figures and if you only read the headlines, you'd think that housing had cratered. Some of the angles were quite bold, even:
Weak U.S. Home Sales Show Recovery's Shakiness (Reuters)
Housing Forecast : Off Life Support, Still In Critical Care (CBS News)
These headlines, although technically accurate, only tell half the story, however. The other half relates to November 30's role as the original First-Time Home Buyer Tax Credit ending date.
See, different from home resales, when a contract is written on a newly-built home, the home is rarely finished. According to the Census Bureau, just 1 in 4 new homes are sold "move-in ready". The other 3 of 4 are in various stages of construction when a buyer signs on the dotted line.
Some have yet to break ground, even.
Regardless, it's at this date of signing that the Census Bureau counts the home as "sold" -- not at the actual closing. This is the main driver of the November New Home Sales data dip.
First-time home buyers would have risked up to $8,000 in federal tax credits if they bought a newly-built home and it wasn't ready for move-in by November 30, 2009. And it wasn't until November 5 that the credit was officially extended.
Suddenly, first-timers representing more than half of last month's Existing Home Sales isn't so shocking. Buying new carried a lot risk.
There's always more to the story than the headline. Sometimes, you have to dig deeper. Looking back over 10 months, the housing market is on a steady course of improvement. November's New Home Sales data -- although weak -- is not terrible.
For the 4th consecutive month, the Existing Home Sales report revealed what today's buyers and sellers already know -- there's a lot of buyer activity right now.
Existing Home Sales surged 7-plus percent in November, posting its largest number of recorded sales in 33 months. Sales volume is up 44% higher versus last year.
It's another example of the housing market in recovery.
There were other interesting statistics buried in the November data, too. According to the National Association of Realtors:
51 percent of home buyers were first-timers
Distressed properties accounted for one-third of all sales
The median home sale price rose slightly
But of all the stats from the November Existing Home Sales report, perhaps the most important one is the one showing home supplies falling to 6.5 months. It's nearly half of the home supply available last November.
The rapid run-off of inventory throughout 2009 is more than a trend at this point and suggests higher home valuations in 2010. Especially because mortgage rates are low, tax credits are available, and the press is giving housing positive coverage.
You shouldn't feel rushed to buy, but you probably don't wait too long, either. The best deals of 2010 may be gone before that Spring Buying Season even starts.
Mortgage pricing worsened Monday, driving mortgage rates to their highest levels since October.
The day's action was drastic, too.
Some banks issued as many as 3 rate sheets Monday -- each worse than the preceding and one reason why rates got so bad, so quickly, is because this week marks the beginning of mini-Vacation Season on Wall Street.
Between now and January 4, 2010, be prepared for big swings in pricing from day-to-day. Shopping for a mortgage could be a challenge.
The relationship between vacation days and mortgage rate volatility is rooted in how mortgage rates are "made".
Conforming mortgage rates are based on the price of mortgage-backed bonds, a security that is sold on Wall Street
Mortgage-backed bonds can't sell without a bond buyer and a bond seller agreeing to a specific sale price
So, during vacation week, when the total number of market participants are less, there are fewer opportunities for buyers and sellers to meet at a specific price. As a result, bond prices rise and fall with a higher velocity than on a "normal" day. Rallies and momentum plays are exaggerated, too.
Now, mortgage market action like this can work in your favor, or it could work out of your favor. Unfortunately, on Monday, rates moved out of favor.
This rest of this week is stacked with market-moving economic data. The data could be better-than-expected, or worse-than-expected. Either way, markets will react a little more feverishly than normal. Therefore, if you have a chance to lock a favorable rate, consider taking it.
Mortgage markets improved last week as pricing followed a roller coaster-like pattern. After touching a 6-week high Tuesday, rates rallied to weekly lows Thursday, and then jumped back higher Friday.
Despite the improvement last week overall, mortgage pricing remains significantly worse from the all-time lows set in late-November.
Oddly, last week's most prominent mortgage-related story wasn't the most influential one.
On Wednesday, the Federal Open Market Committee adjourned from a two-day meeting. It voted to leave the Fed Funds Rate unchanged from its current target zone of 0.000-0.250 percent. This wasn't news, per se -- markets expected the "no change" vote.
However, in its accompanying press release, the Fed appeared more rosy in its economic outlook, citing improving labor markets and low levels of inflation. Results like this are a mixed bag for rate shoppers, but is generally welcomed as good news.
Rates were unchanged after the FOMC release.
The bigger story last week comes from Greece.
Concerns for the country's debt burden have been in play for weeks, but last week, Standard & Poor's officially downgraded Greece's debt rating. The move triggered concerns regarding broader Eurozone debt, especially considering the recent issues in Dubai.
U.S. mortgage markets benefitted from Greece's troubles as "safe haven" attracted investors, driving down rates Thursday afternoon.
Debt concerns should remain in focus this week. Furthermore, there's a bevy of domestic data that could swing rates in either direction, too. Most notably, watch for Tuesday's housing data, Wednesday's inflation data, and Thursday's consumer confidence data. Each can be a powerful influence on rates.
There will be less volume on Wall Street because of Christmas and less volume tends to spur mortgage rate volatility. Be wary of swings in either direction.
Markets close early Thursday and will be closed Friday.
Posted by Tiffany Taylor on December 21, 2009 | Comments (0) | Tags: FOMC
Housing Starts jumped last month as builders got back to business. It's a telling sign for the economy, but bad news for next season's sellers.
With more homes coming online, home prices may be slow to rise nationwide.
A "Housing Start" is a privately-owned home on which construction has started. In November, starts rose by nearly 9 percent while remaining within the same tight range we've seen since June.
More interesting that Housing Starts, though, is the accompanying data for Housing Permits. After a 5-month plateau, Housing Permits finally broke through, posting its largest number in 12 months.
This, too, bodes poorly for sellers.
Housing permits are precursors to housing starts so because the number of permits are higher today, we expect that the number of starts will be higher just a few months from now.
More permits means more starts which, in turn, leads to a larger home inventory. And when home supplies grow faster than the home demand, prices fall.
Throughout the early part of 2010, low mortgage rates and federal tax credits should help hold demand high but if builders flood the market with new, quality product, sellers may find that they've lost some of their leverage.
The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that the U.S. economy "has continued to pick up", that the jobs markets is getting better, and that housing market has shown "some signs of improvement" lately.
It's the fourth straight statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the worst of the recession is likely behind us.
The economy isn't without threats, however, and the Fed identified several, including:
Tight credit conditions for consumers
Reluctancy of businesses to hire new workers
Lower overall housing wealth
The message's overall tone remained positive, however and inflation appears to be held in check.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market. That plan -- due to expire at the end of March 2010 -- should be noted by today's homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.
Mortgage market reaction to the Fed press release is negative. Mortgage rates are rising this afternoon.
Fannie Mae raised the bar for mortgage applicants this past weekend. Getting approved for a home loan just got harder.
In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that's the case, this won't be the last guideline change Fannie Mae makes -- especially with loans defaulting at an above-normal clip.
The immediate changes are major. The first pertains to credit scores.
Effective December 13, 2009, the bulk of Fannie Mae's loans require a 620 credit score minimum. There are very few exceptions.
A second relates to loans with private mortgage insurance.
Homeowners whose loan-to-value exceeds 80 percent now have a choice:
Pay a one-time fee paid at closing to compensate for higher risk
Both options result in higher consumer loan costs.
A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.
In no case whatsoever may debt-to-income exceed 50 percent.
There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for "expanded level" mortgage approvals. These updates affect just a small part of the population.
So, home prices are rebounding, mortgage rates are low, and -- for 5 more months at least -- there's a federal tax credit for qualified buyers. You don't have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.
The best "deal" won't matter if you can't get qualified on your mortgage.
The Federal Open Market Committee meets today for the last time in 2009. It's a 2-day meeting and the Fed is expected to leave the Fed Funds Rate near 0.000 percent.
But that doesn't mean mortgage rates won't change.
See, a major misperception among the public is that the Federal Reserve sets mortgage rates. That's false. Mortgage rates are based on the price of mortgage-backed bonds.
As an example, since 2000, the Fed Funds Rate and the 30-year fixed rate mortgage have been within 1 percent of each other at times, and as far apart as 5 percent at others.
If there was a direct relationship between the two, such a spread would be impossible.
The Federal Reserve doesn't set mortgage rates. Wall Street does. However, whenever the Fed adjourns from its meetings, mortgage rates are susceptible to change.
For home buyers and rate shoppers, this week's Fed meeting takes on added significance.
Over the last half-year, the Fed has used its post-meeting press releases to acknowledge an improving economy in which growth is tempered by job loss and tepid spending. In November, though, net job gains nearly went positive and Retail Sales data proved strong.
If the Fed gets more positive in its message tomorrow, mortgage rates will suffer. This is because Wall Street will use the Fed's position on the economy as a reason to buy stocks. Some of the cash to fuel those buys will come from the mortgage bond market.
As extra bond supply hits Wall Street, mortgage rates go up.
Similarly, if the Fed's message goes negative on the economy, investors are expected to selltheir stock positions in favor of buying bonds. This makes rates go down.
So, the Federal Reserve doesn't make mortgage rates, but it does exert an influence on them. In other words, rate shoppers would be wise to watch for the FOMC's 2:15 PM adjournment. Even though the Fed Funds Rate is expected to remain unchanged, mortgage rates certainly are not.
Posted by Tiffany Taylor on December 15, 2009 | Comments (0) | Tags: FOMC
Mortgage markets worsened for a second consecutive week last week amid debt default concerns and stronger-than-expected economic data. Dollars left the bond market and mortgage rates suffered.
After re-reaching an all-time low December 1, mortgage rates have since rolled back to mid-November levels.
Rates are still low right now. Just not as low.
And meanwhile, last week's big story -- the one that should concern mortgage applicants between now and early-2010 -- is the story of Retail Sales.
Last week, a government report showed that American consumers are spending more this holiday season than was expected. The Retail Sales data implies that consumers are feeling more confident in themselves, and in the economy overall.
This is one of the last remaining pieces in the economic recovery puzzle. Job growth, of course, is another, and both will be in focus this week as the Federal Open Market Committee meets for its final 2-day meeting of the year.
The FOMC isn't expected to raise the Fed Funds Rate from its current "target range" near 0.000%, but when the FOMC adjourns at 2:15 PM Wednesday, its press release will dominate the news.
Specifically, watch for verbiage on the expected economic growth for 2010 because no matter what the Fed says, mortgage rates will be in flux. As one example:
If the Fed says inflation is under control, mortgage rates should fall
If the Fed says inflation pressures are growing, mortgage rates should rise
There's other news this week, too, including PPI and CPI -- 2 popular inflation gauges, plus some housing data, too.
If you need to lock a rate this week, it may be safer to lock prior to the FOMC's adjournment. Given the recent strength in Retail Sales and the reports of "crowded malls" this past weekend, the Fed may choose to revise its growth estimates for the economy -- a move that would be awful for mortgage rates.
Posted by Tiffany Taylor on December 14, 2009 | Comments (0) | Tags: FOMC
If you wonder what mortgage rates and home affordability will look like next year, today's Retail Sales data may hold your answer.
Versus October, November's ex-auto sales were up by more than 1 percent. Analysts expected the increase, but not an increase of this magnitude.
"Ex-auto" means that motor vehicles and parts are excluded from the data.
Home values are increasing in many parts of the country and household net worths are rising, too. Therefore, we can infer from the Retail Sales report that U.S. consumers are starting to feel better about their individual finances, and about the economy overall.
To homebuyers and rate shoppers, strong Retail Sales data may foreshadow higher rates for mortgages ahead. This is because sales data is a by-product of consumer spending and consumer spending accounts for more than two-thirds of the economy.
As spending increases, the economy tends to expand, drawing investment dollars into stock markets and away from bond markets -- including mortgage-backed bonds, the basis for conforming mortgage rates.
Less bond demand leads to higher rates and, therefore, lower levels of home affordability.
Despite the Holiday Season momentum, however, 2009 will likely mark just the second time that Retail Sales data fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.
But, if November's Retail Sales is a reliable indicator of consumer sentiment overall, we should expect 2010 to rebound strongly. And when it does, mortgage rates should suffer.
The housing market is recovering, mortgage rates are still near all-time lows, and the government is offering an $8,000 tax credit to qualified buyers through April 30, 2010. If you plan to buy a home next spring, you may want to consider moving up your timeframe. Waiting may be costly.
Since peaking in July 2009, national foreclosure activity has dropped through 4 consecutive months.
On a month-to-month basis, November's foreclosure activity fell another 8 percent.
However, national foreclosure activity continues to be dominated by a minority of states.
As reported by RealtyTrac.com, more than half of November's foreclosure-related activity sourced from just 4 states:
California
Florida
Illinois
Michigan
These are the same 4 states that topped October's foreclosure activity despite three of them posting month-to-month declines last month.
The remaining Top 10 states in terms of total foreclosure activity include Arizona, Texas, Ohio, Georgia, Nevada and New Jersey.
If you've been actively looking at REO lately, you've likely noticed that true bargains are harder to find. This is because buyers of all types -- first-timers, move-ups, and investors -- are purchasing bank-owned homes aggressively and getting better at identifying the "best ones".
But just because supplies are dwindling doesn't mean you should just jump in. Buying foreclosures isn't for everyone for two very strong reasons:
Homes are often sold as-is and may have "issues"
The closing process can be unpredictable
Therefore, if you're thinking of buying a foreclosed home, be sure to talk with your real estate agent about potential problems before going under contract. Better too soon than too late.
There are still good deals in the foreclosure market, but based on November's data, they may not last through the winter. "Distressed home" sales now account for 30 percent of home resale activity.
Since peaking in July 2009, national foreclosure activity has dropped through 4 consecutive months.
On a month-to-month basis, November's foreclosure activity fell another 8 percent.
However, national foreclosure activity continues to be dominated by a minority of states.
As reported by RealtyTrac.com, more than half of November's foreclosure-related activity sourced from just 4 states:
California
Florida
Illinois
Michigan
These are the same 4 states that topped October's foreclosure activity despite three of them posting month-to-month declines last month.
The remaining Top 10 states in terms of total foreclosure activity include Arizona, Texas, Ohio, Georgia, Nevada and New Jersey.
If you've been actively looking at REO lately, you've likely noticed that true bargains are harder to find. This is because buyers of all types -- first-timers, move-ups, and investors -- are purchasing bank-owned homes aggressively and getting better at identifying the "best ones".
But just because supplies are dwindling doesn't mean you should just jump in. Buying foreclosures isn't for everyone for two very strong reasons:
Homes are often sold as-is and may have "issues"
The closing process can be unpredictable
Therefore, if you're thinking of buying a foreclosed home, be sure to talk with your real estate agent about potential problem before going under contract. Better too soon than too late.
There are still good deals in the foreclosure market, but based on November's data, they may not last through the winter. "Distressed home" sales now account for 30 percent of home resale activity.
The average family spends $2,200 per year in electric bills and the average home is responsible for twice the amount of greenhouse gases than the average automobile.
Whether you want to save money or save the environment, this 5-minute piece from the NBC Today Show is for you. In it, you'll learn that just by being aware of your energy consumption, you can reduce it by up to 15 percent.
The piece centers on a device called a Power Monitor which retails from $30 to $100, depending on the model. It measures the actual cost of using an appliance, or using a light, or charging a laptop, or any other household energy use.
Among the cost findings:
A plugged-in phone charger no phone attached costs $0.10 per hour
Cooking with a microwave costs $0.88 per hour
Big screen TVs cost $0.06 per hour to operate
Obviously, turning off lights when rooms aren't in use saves money, too.
By making small changes -- most of which aren't inconvenient -- the average family can drop its energy bill by hundreds of dollars each year.
For many American homeowners, interest paid on a mortgage is tax-deductible in the year in which it was paid.
Knowing that, eligible homeowners can increase their 2009 tax deductions just by making their January 2010 mortgage payment before the end of the year.
By paying in 2009, the mortgage interest paid can be applied against 2009's itemized tax deductions even though the payment isn't technically due until 2010.
And lest you think you're paying the mortgage "in advance", remember that mortgage interest is paid in arrears; a payment due January 1 accounts for interest that accumulated in December 2009 anyway.
Tax planning is a complicated issue and not all homeowners qualify for mortgage interest tax deductions. Check with your tax professional before making tax planning decisions.
If you don't have an accountant you trust, call or email me anytime; I'm happy to make a recommendation to you.
Posted by Tiffany Taylor on December 08, 2009 | Comments (0) | Tags: Taxes
Mortgage markets finally reversed course last week, selling off with fury and causing prices to plummet.
When bonds prices fall, rates rise.
The action broke a multi-week winning streak, much to the disappointment of rate shoppers everywhere. Rate hikes came in stages.
First, early in the week, mortgage bonds fell out of favor as traders booked profits ahead of the November jobs report and as concerns over a Dubai Default waned.
Then, on Friday, when the jobs report was ultimately released, it showed a net loss of just 11,000 jobs in November and dip in the Unemployment Rate to 10.0 percent.
Mortgage markets got hit again.
Now, since bottoming last Monday, mortgage pricing is worse by more than 100 basis points. As that figure relates to rates, it's a jump of anywhere from a quarter- to a half-percent.
Last week was a bad week to not be locked in. Unfortunately, this week may not be much better.
Without much data due for release, momentum should lead mortgage rates higher. Amid a few confidence surveys and a speech by Fed Chairman Bernanke, the biggest news on the week will be Friday's Retail Sales report.
Retail Sales matters to mortgage rates because consumer spending accounts for two-thirds of the economy. And now, with jobs data looking stronger, Retail Sales are expected to show a modest increase versus last month.
If the data comes in better-than-expected, mortgage rates should rise -- much like they did on the jobs data. On the other hand, if the data is weak, expect rates to retreat.
Mortgage rates tend to rise faster than they fall so if your homebuying or refinance needs are immediate, it may be prudent to lock your rate rather than to wait and see what happens with the economy and this week's momentum.
Despite getting worse last week, mortgage rates are still very low.
This morning's jobs report is causing mortgage rates to rise, capping a week during which rates have already jumped 3/8 percent off all-time lows.
The government's November Non-Farm Payrolls report reinforced the notion that the recession is nearly over, if not over already.
Just 11,000 jobs were lost last month -- much fewer than analysts had expected -- as the Unemployment Rate fell to 10.0%.
If it seems strange to be talking economic recovery while Americans are still losing jobs -- 7.2 million since 2008 -- remember that data always needs context.
See, analysts view employment figures as a lagging indicator for the economy. This is because business owners tend to make hiring decisions based on how business has been -- not on how it will be at some point in the future.
The jobs report rarely reflects the "right now". As an example, job loss peaked in January 2009 -- 4 months after the height of the financial crisis.
We saw the same pattern during the Recession of 2001.
According to government data, during the last recession, job loss peaked in October 2001 but the recession ended the very next month. It wasn't until October 2002 that employment went net positive on a monthly basis.
And this is why investors are cheering November's jobs report. Better-than-expected numbers and a falling Unemployment Rate show that the economy is improving.
Unfortunately for rate shoppers, better-than-expected data is pushing mortgage rates higher. Rates are expected to open 0.250% higher versus yesterday's close.
'Tis the season to do shopping -- and get bombarded with offers to open credit cards.
The deals are tempting, too. "Open a charge card today" and save up to 20% on your purchase. Considering that the average Black Friday ticket was $343, that's $68 saved per store.
For big-ticket items like televisions, the savings are even bigger.
But for people in the market for a new home -- or looking to refinance -- taking advantage of in-store savings could be a long-term money loser.
Every time you apply for a credit card, your credit score drops.
According to myFICO.com, "new credit" accounts for 85 out of 850 possible credit scoring points. New credit is defined by such traits as:
Number of recently opened accounts
Number of recent credit inquiries
Time since credit inquiry(s)
Proportion of accounts that are recently opened to all open accounts
Shoppers with few open credit cards are more likely to see their scores drop that shoppers with many cards.
Regardless, a credit score is worth protecting because of how mortgage rates are made. A conventional mortgage applicant with 20% equity whose FICO is 720-739 will be subject to a 0.125% loan fee that a comparable applicant at 740 would not have to pay.
For 700-719, the cost increases to 0.750%
For 680-699, the cost increases to 1.500%
For 660-679, the cost increases to 2.500%
Having a low credit score can be expensive.
It is okay to take advantage of in-store savings during the holiday shopping season, but it's also important to be aware of how your credit score may be affected.
If you're not applying for a mortgage in the next six months, you'll likely be alright. But, on the other hand, if you know you'll need your FICO soon, consider whether saving 15 percent on a $343 ticket is worth the long-term cost of a higher mortgage rate.
When a home seller accepts a contract on an MLS-listed property, the property's status changes from "Active" to "Pending".
This means the home is scheduled to sell, but not yet sold.
Each month, the National Association of Realtors® tallies the number of pending homes and publishes the data as the Pending Homes Sales Index report.
In October, for the 9th straight month, the index gained. It's the longest such streak in Pending Home Sales history.
Because a "pending" home sale is just a contract between buyer and seller, it's not as important to the economy as actual home sales. However, the Pending Home Sales Index can be a fine predictor of future activity.
Historically, 80 percent of homes under contract "close" within 60 days, and most others close within 120 days. Recent Existing Home Sales data corroborates this. Home sales activity is at its highest pace in nearly 3 years.
The Pending Home Sales Index does have some shortcomings, though:
It doesn't account for newly constructed homes, a small but important part of the real estate market
It doesn't track For Sale By Owner properties and other non-MLS listed homes
Its sample set is small, measuring just 20 percent of all MLS-listed sales
Despite this, however, Pending Home Sales is a terrific measure of real estate market strength. Homes are going under contract at a dizzying pace. It's thinning out home inventory supplies and pressuring prices to rise.
This chain reaction is what makes Pending Home Sales Index worth tracking. As the number of homes under contract increase, home prices can't be far behind.
The supply of newly-built homes fell to its lowest levels since 2006, offering additional proof of a housing market in recovery.
Home supply is defined as the amount of time it would take to sell the current inventory of homes at the current pace of sales.
In October, for the 8th consecutive month, home supplies fell. Since peaking in January 2009, it's now down by almost half.
Lower supply leads to higher prices. This is Economics 101.
Furthermore, supply is expected fall into 2010. According to the government, builders are breaking ground on new homes at a declining pace, even as sales ramp up.
Builders are cheering the October New Home Sales report, but its the everyday sellers of "existing homes" that have real reason to celebrate.
See, as builders clear out their respective inventories and turn profitable, there's less reason for them to offer the types of over-the-top purchase incentives that characterized the last 12 months of selling.
With fewer builder incentives, the playing field levels between large corporations and individual home sellers.
And while this is happening, buyers are eagerly taking advantage of low mortgage rates and federal tax credits for buying homes. It's pressuring home prices higher overall.
Since January 2009, the average sale price of a newly-built home is up 6 percent.
Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying.
The holiday-shortened trading week amplified what should have been modest gains into large ones.
Conforming mortgage rates dropped by about a quarter-percent last week, dropping them near their best levels of the year -- and of all-time.
Oddly, mortgage rates are falling as the U.S. dollar weakens. This is atypical because mortgage bonds are repaid in U.S. dollars. When the value of the dollar is falling, therefore, the value of holding mortgage bonds become less over time.
Investors are snapping up bonds with fury, however. Partially because of lingering concerns related to Dubai, and partially because of faith in the U.S. economy's long-term health.
This week, those beliefs could be shaken to the core -- specifically because of Friday's jobs report.
It's no secret that the economy is growing. Housing is improving, banks are re-capitalizing, and businesses are making capital investment. However, employment is lagging.
More than 4 million jobs have been lost this year and the unemployment rate is north of 10 percent for the first time since 1983. Consumers are worried for their jobs and are guarding their wallets the holiday season as a result.
The economy can't grow without consumer spending, though, and that's why Friday's job figures will play an especially large role in mortgage markets. If employment data goes positive, stock markets will rally at the expense of mortgage rates.
Conversely, if data looks worse, mortgage rates should dip.
Either way, it's a gamble. If you haven't looked at the benefits of a refinance lately, waiting until Friday to see what happens may be ill-advised. This is because the last two times mortgage rates fell this low, markets corrected within 48 hours, sending rates soaring higher.
Rates look good today. Consider locking something in before rates have reason to rise.
Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.
The FOMC Minutes is a companion to the Federal Reserve's post-meeting press release. It's released 3 weeks after the Fed adjourns and details the internal debates that shape our nation's monetary policy.
As compared to the press release, the minutes can be rather lengthy. November's press release featured 428 words, the minutes offered 6531.
However, this extra level of detail shapes markets and mortgage rates. With Wall Street unsure about the economy's path, investors look to our nation's central bankers for guidance.
The Fed has made several points clear:
The economy shows tell-tale signs of improvement
Unemployment threatens the recovery
Inflation pressures are low, for now
Overall, the FOMC Minutes paint the economy as in a state of measured repair, and under tight federal surveillance. Investors like this message and, as a result, stock and bonds markets are improving.
If you haven't checked mortgage rates lately, make a point to do that. In the wake of the FOMC Minutes, conforming mortgage rates are now hovering near their all-time lows set exactly 1 year ago.
Posted by Tiffany Taylor on November 27, 2009 | Comments (0) | Tags: FOMC
Since forming Platinum Funding in 1998, Tiffany has provided leadership and strategic planning for the company. She has over 17 year experience in Residential and Commercial financing. Tiffany’s knowledge spans all aspects of the mortgage industry, including; Escrow, Title, Residential Loan Underwriter, and Senior Originator for both residential and commercial properties.
She provides strategic direction and tactical leadership, managing the growth, and direction of all matters related to the business. She makes it her job to stay abreast of and incorporate the latest industry trends and methodologies in the area of mortgage loans. She maintains an expert-level knowledge of the mortgage banking industry and related accounting, technological and operational practices, and has an expert knowledge of the laws regulating mortgage banking and financial services.
Mortgage markets improved last week on domestic jobs data and international banking concerns. The news triggered buying in the bond market and, as a result, conventional, FHA and VA mortgage rates improved for the 4th consecutive week.
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Conforming and FHA mortgage rates improved last week on the combination of weaker-than-expected economic data and new anti-banking rhetoric from the White House.
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Mortgage markets showed little conviction last week, carving out just a narrow trading channel. There was very little data on which for markets to move, leaving mortgage rates momentum-bound.
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One day after November's Existing Home Sales report 
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'Tis the season to do shopping -- and get bombarded with offers to open credit cards.
When a home seller accepts a contract on an MLS-listed property, the property's status changes from "Active" to "Pending".
Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying. 
Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.
