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.
In the 3-minute piece, the NBC Today Show talks about 7 ways that homebuyers ruin their credit -- often by accident. Some of the highlighted mistakes include:
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.
Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December. Thursday, the public-sector Home Price Index showed the same.
Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December. And that's an average, of course. Some regions performed well in December as compared to November, others didn't.
These aren't just footnotes. They're an important piece toward understanding what national real estate statistics really mean. In short, "national statistics" are just a compilation of a bunch of local statistics.
For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won't see that in a "national" report.
Furthermore, it's a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not. Just because the city shows higher home values overall, it won't necessarily be the case for every home in the city.
Every street in every neighborhood of every town in America has its own "local real estate market" and, in the end, that's what should be most important to today's buyers and sellers. National data helps identify trends and shape government policy but, to the layperson, it's somewhat irrelevant.
So, when you need to know whether your home is gaining or losing value, you can't look at the national data. You have to look at your block -- what's selling and not selling -- and start your valuations from there.
The housing recovery showed particular weakness in the New Homes Sales category last month -- good news for homebuyers around the country.
A "new home" is a home for which there's no previous owner.
New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963 -- the year the government first started tracking New Home Sales data.
Right now, there are roughly 234,000 new homes for sale nationwide and, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009's pace.
The reasons for the spike in supply are varied:
Now, these might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it's a welcome turn of events. Home prices are based on supply and demand, after all.
As a result, this season's home buyers may be treated to "free" upgrades from home builders, plus seller concessions and lower sales prices overall.
It's all a matter of timing, of course. New Home Sales reports on a 1-month lag so it's not necessarily reflective of the current, post-Super Bowl home buying season. And from market to market, sales activity varies.
That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It's a favorable time to buy a new home.
Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday. The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.
According to Case-Shiller representatives, the housing market is "in better shape than it was this time last year", but some of the summer's momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.
Meanwhile, it's interesting to note the 5 markets that didn't decline -- Detroit, Los Angeles, Las Vegas, Phoenix and San Diego. Each of these metro regions were among the hardest hit nationwide when home prices first broke. Now, they're leading the pack in price recovery.
For some real estate investors, that's a positive signal. But we also have to consider the Case-Shiller Index's flaws because they're big ones.
As examples:
That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.
If the markets that led the housing decline will lead the housing resurgence, December's data shows that full recovery is right around the corner.
You can't get your mortgage rates from the newspaper. Last week proved it. Again.
Friday morning, headlines and around the country read that mortgage rates were down 0.04 percent, on average, since the week prior.
A sampling of said headlines includes:
The story behind the headline was sourced from the Freddie Mac Primary Mortgage Market Survey, am industry-wide mortgage rate poll of more than 100 lenders. The PMMS has reported mortgage rate data to markets since 1971 and is the largest of its kind.
Unfortunately, rate shoppers can't rely on it.
See, unlike governments and private-sector firms, when consumers are in need mortgage rate information, they need the information delivered in real-time; for making decisions on-the-spot. Consumers need to know what rates are doing right now.
The Freddie Mac survey can't offer that.
According to Freddie Mac, the survey's methodology is to collect mortgage rates from lenders between Monday and Wednesday and to publish that data Thursday morning. The survey results are an average of all reported mortgage rates. The problem is that mortgage rates change all day, every day. The PMMS results are skewed, therefore, by methodology.
And, meanwhile, the issue was compounded last week because mortgage rates shot higher Wednesday afternoon -- after the survey had "closed". The market deterioration ran into Thursday, too -- again, unable to be captured by Freddie Mac's PMMS.
Although the newspapers reported mortgage rates down last week, they weren't. Conforming mortgage rates were higher by at least 1/8 percent, or roughly $11 per $100,000 borrowed per month. In some cases, rates were up by even more.
Newspapers and websites can give a lot of good information, but pricing is far too fluid to rely on a reporter. When you need to know what mortgage rates are doing in real-time, make sure you're talking to a loan officer. Otherwise, you may just be getting yesterday's news.
Mortgage markets had a terrible, holiday-shortened week last week as Wall Street responded to worse-than-expected inflation data and action from the Federal Reserve. Mortgage bonds sold off with force, causing mortgage rates to rise for the second week in a row.
Last week was a bad week to float a mortgage, to say the least. Rates rose by the largest margin in any week since late-2009.
The two biggest stories from last week both came from the Federal Reserve. The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed's surprise announcement to raise the nation's Discount Rate to 0.75%. Both sparked risk-taking on Wall Street and bonds sold-off as a result.
Now, the Fed Funds Rate won't climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets -- The Era of Loose Monetary Policy is over.
This week, there's a lot of economic data set for release.
With markets already on edge, any better-than-expected results should be bad for mortgage rates.
After last week's performance, conforming mortgage rates have now unwound most their January gains. If you're waiting for the right time to lock, it may have been 2 weeks ago. Consider locking in this week to protect against any further deterioration in price.
Mortgage markets reeled Wednesday after the Federal Reserve released the minutes from its January 26-27, 2010 meeting. Mortgage rates are now at their highest levels since the start of the year.
The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It's a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers' policy decisions.
The Minutes is a terrific look into the Fed's collective mind and, yesterday, Wall Street didn't like what it saw. Specifically, the report disclosed that:
Furthermore, the Fed Minutes said that there is a growing risk of "higher medium-term inflation". Inflation, of course, is awful for mortgage rates.
Overall, the Fed's economic optimism appeared stronger after its January meeting as compared to its December one. A stronger economy should lead to better job growth and higher home prices throughout 2010.
Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more. Therefore, if you're buying a home in the near-term, or know you'll need a new mortgage, consider moving up your time frame.
Every 1/8 percent makes a difference in your household budget.
According to the Census Bureau, 2.8 million people commute to work 90 minutes or more each day, in each direction.
Now, your daily commute may not be as long, but time spent in cars, trains and buses is time away from work and from family. Drive-time can affect a person's Quality of Life and it's one reason why Forbes Magazine's Best and Worst Commutes is worth reviewing.
Measuring travel time, road congestion and travel delays in the 60 largest metropolitan areas, Forbes ranks city commutes from best-to-worst with Salt Lake City topping the list and Tampa-St. Petersburg finishing it.
The Top 5 Commutes, as compiled by Forbes:
The bottom 5 are Tampa-St. Petersburg, Detroit, Atlanta, Orlando, and Dallas-Forth Worth.
Long commutes shouldn't deter you from moving to a particular city, but the potential commute should be consideration. Before making an offer on your next home, make a rush-hour commute to work from your potential new neighborhood. Then imagine doing it every day.
You can read the complete Forbes list of Best and Worst Cities for Commuters on its website.
Mortgage markets worsened last week on general profit-taking in the U.S. bond market, combined with talk of a coordinated rescue effort for Greece and its debt burden. Mortgage-backed bonds sold off, causing conventional and FHA mortgage rates to rise.
There wasn't much hard data on which to trade last week, either, so momentum took markets farther than they otherwise might have moved on their own. It marked the first time in 5 weeks that rates rose for rate shoppers.
This week, data returns. Expect mortgage market movement.
Some of the week's more important releases include:
Inclement weather may have impacted last month's Housing Starts reading so pay closer attention to Building Permits. Permits precede actual construction and can be more indicative of economic optimism. If permit readings are strong, it should be a negative for mortgage rates.
The same is true for the FOMC Minutes.
Last month's FOMC post-meeting press-release was decidedly middle-of-the-road, but the statement is just a summary of the Fed's 2-day meeting, boiled down to a few paragraphs. Wednesday's release of the FOMC Minutes will reveal the deeper discussions among members of the Fed. Wall Street will mine it for clues about the future of the economy.
If Wall Street senses optimism coming from the Fed -- again -- mortgage rates should rise.
And, lastly, keep an eye on Thursday and Friday's inflation data. Inflation is bad for mortgage rates so a higher-than-expected reading should spark a bond market sell-off.
Since mid-December, mortgage rates have moved within a tight range and there's little reason for rates will break this range this week. However, we are near the top of the channel. If you know you're going to need a rate locked soon, it's probably best to do early in the week.
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.
In November 2008, the economy added 4,000.
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.
The Pending Home Sales Index rose slightly in December, climbing 1 percent from November.
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.
In a news-heavy week, mortgage markets improved last week, adding to a 3-week rally.
But, given last week's data and domestic story lines, it's surprising that rates actually fell.
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.
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