It's official -- home prices are no longer in free fall.
According to the Federal Housing Finance Agency, the Home Price Index posted its first quarterly increase since 2007 last quarter.
The news was reported Tuesday.
The Home Price Index is an interesting metric. It's huge in its scope, accounting for every home sold in the country that backs a mortgage bound for Fannie Mae or Freddie Mac with two notable exceptions:
Because the Home Price Index makes these specific exclusions, and because it doesn't account for FHA and jumbo mortgages, some analysts discount the HPI's relevance. They prefer the private-sector Case-Shiller Index instead.
Now, to be fair, the Case-Shiller has its own set of flaws, too.
For example, it excludes condos and co-ops, and only tracks sales in 20 cities nationwide. But, of all the private home valuation models, Case-Shiller is the most well-known and most widely-used.
The Case-Schiller Index was also released Tuesday and the report showed the same results as its government-issued counterpart -- home values increased between the second and third quarter.
When the Home Price Index and Case-Shiller Index reach similar conclusions, markets tend to buy-in. Home buyers should, too.
Home values have likely bottomed and are starting to turn higher, as shown in two separate reports. High sales volume and dwindling supply are contributing factors. So are low mortgage rates and a tax credit.
If you're on the fence about buying a home, at least consider your options. In 2010, homes are unlikely to be as cheap to buy, or as cheap to finance.
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.
Another month, another piece of evidence that the housing market is in recovery.
Existing Home Sales surged in October as the nation's homebuyers took advantage of low mortgage rates, low list prices, and, for some, a generous tax credit.
Home resales are 23 percent higher versus a year ago and home supply is down to 7 months nationwide.
Inventory hasn't been this low since February 2007.
The news shouldn't be surprising, however. The same real estate trade group that produces the Existing Home Sales report also publishes a monthly report meant to predict future home sales called the Pending Home Sales Index.
Pending Home Sales have been through the roof since mid-May.
So, with pending home sales showing no signs of slowing and 80% of pendings turning into actual, closed sales, we can expect existing home sales volume to rise in the coming months, too. Especially because Congress extended the home buyer tax credit to include (1) "Move-up" buyers and, (2) Buyers with higher household incomes.
It's terrific news for home sellers. The housing market turnaround means higher sale prices and fewer concessions to buyers long-term.
To buyers, on the other hand, the news isn't so good. The window to find a "deal" appears to be closing quickly.
Mortgage markets worsened last week on a mixed bag of economic data. Inflation data came in soft, but so did the start of the holiday shopping season.
For the first time in a month, mortgage rates worsened last week, adding roughly 0.125 percent on conforming fixed-rate products, and a little bit more on ARMs.
Despite rates worsening, there was still some good news for home buyers and would-be refinancers. Mortgage rate volatility was markedly lower than in recent weeks. You could shop for mortgage rate last week and actually take your time about it.
This is in stark contrast to the last month or so over which mortgage rates changed every few hours, on average.
This week, though, because a heavy data calendar is combining with a holiday-shortened trading week, rates aren't likely to stay as tame.
Each of these data points are market-movers by themselves. In tandem, however, they could really shake things up. Then, at the tail end of the week, markets will react to Black Friday.
If stores look full Friday and initial receipts appear high, stock markets should rise at the expense of bonds, leading mortgage rates higher.
Additionally, expect that mortgage rate changes will be amplified because of low trading volume. This could work in your favor, or out of your favor -- depending on the market direction.
With mortgage rates at such low levels and unlikely to fall much further, locking a rate is advisable. If you choose to float, though, keep your loan officer on speed dial because when rates do rise, they're going to rise quickly.
For today's home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.
The 15-year/30-year interest rate spread is near its 5-year high.
Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments. This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.
As compared to 30-year terms, 15-year products repay 3 times as much principal each month.
Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting. The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.
Another negative is that the sheer size of the payment. If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do.
In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term. If you can manage it, though, the rewards are tangible.
At today's rates, a 15-year fixed and 30-year fixed costs $230 extra per $100,000 borrowed.
A "Housing Start" is a home on which construction has started and, for the 4th straight month, national single-family housing starts held steady last month.
When the demand for homes grows faster than the number of homes for sale, prices increase.
As recent home sales data confirms, buyers currently outpace sellers and one consequence of this is an increase in multiple-offer situations this year.
It's no wonder home prices are up across so many neighborhoods.
October's Housing Starts report is yet another piece of housing data foreshadowing rising home prices into 2010.
Building Permits were also down in October, a potential demand-to-supply imbalance magnifier. Without permits, there's no future construction. This drains supply. Meanwhile, tax breaks and low rates tend to stimulate demand and, right now, we've got both.
Therefore, so long as demand remains semi-constant into the New Year, expect home prices to rise.
A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.
Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on "typical" housing costs nationwide.
Loans in excess of this amount are typically called "jumbo".
While home prices increased from 1980 to 2006, so did conforming loan limits. Since then, however, as home prices have dipped, the conforming loan limit has held.
Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit.
The 2010 conforming loan limits, as released by the government, are:
But conforming loan limits don't apply to all U.S. geographies equally. As a result of various economic stimuli since 2008, the government now considers certain regions around the country "high-cost" areas. In these areas, conforming loan limits can range to $729,750.
There are less than 200 such areas nationwide. The complete list is published on the Fannie Mae website.
APR is an acronym for Annual Percentage Rate. It's a government-mandated calculation meant to simplify the comparison of mortgage options.
A loan's APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.
Because APR is expressed as a percentage, many people confuse it for the loan's interest rate. It's not. APR represents the total cost of borrowing over the life of a loan. "Interest rate" is the basis for monthly mortgage repayments.
The main advantage of APR is that it allows an "apples-to-apples" comparison between loan products.
As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees. In this sense, APR can help a borrower determine which loan is least costly long-term.
However, APR is not without its shortcomings.
First, different banks includes different fees into their APR calculations. By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.
And, second, when calculating APR, "life of the loan" is assumed to be full-term. When a 30-year mortgage pays off in 7 years or fewer -- as most of them do -- APR comparisons are rendered moot.
In other words, APR is just one metric to compare mortgages -- it's not the only metric. The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.
Mortgage markets improved last week as foreign buyers of mortgage debt helped to push mortgage rates to a 4-week low.
It marked the 3rd consecutive week that rates improved, breathing extra life into this year's ongoing Refi Boom.
Fixed-rate, conforming mortgage rates fell about 0.125 percent on the week. ARMs did about the same.
There wasn't much data to move mortgage rates last week; investors worked mostly on momentum and trends. However, the Friday University of Michigan Consumer Sentiment survey release garnered some attention.
After worsening in August and September, consumer sentiment fell for the third straight month in October. Analysts worry about what it could mean to the economy. Holiday Shopping season is here and consumer spending fuels the economy. If households hold the purse strings tight, our nation's budding economic recovery may stall.
In a scenario like that, employment rates won't rebound so fast, but rate shoppers might not mind. Slower-than-expected economic growth tends to suppress mortgage rates, helping to improve home affordability overall.
This week, data comes back into focus.
At 8:30 AM ET today, the government will release October's Retail Sales report. This one should be closely watched for its ability to change rates. A weak report should drag rates down, and a strong one should push rates up.
Then, on Tuesday and Wednesday, look for PPI and CPI -- two key inflation indices. Inflation causes mortgage rates to rise so if either of these reports comes in hotter-than-expected, rates will almost certainly rise.
And, lastly, also on Wednesday, we'll get the Housing Starts report for October. Don't expect the markets to move on this one, but keep an eye on the data anyway. Housing markets remain crucial to economic recovery.
Despite rates hovering near recent lows, remember that markets change quickly. A rate quote from the morning is rarely valid by the afternoon and, when rates rise, rates rise fast.
For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.
As reported by RealtyTrac.com, more than half of October's foreclosure-related activity came from just 4 states:
The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.
Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.
Furthermore, Nevada's foreclosure pace is down 4% from last year. This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada's year-to-year foreclosure rate hadn't fallen in more than 4 years.
It's too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by. First-time buyers and bona fide investors alike have been snapping up property at a furious pace.
According to an industry trade group, distressed homes account for nearly one-third of home resale activity.
That said, buying foreclosures isn't for everyone.
For one, properties are often sold as-is and may be defective. The cost of repairs may negate "the deal" or "the steal" -- depending on the cost of the home.
Secondly, closing on a foreclosed home can be a 3-month long process. This is because banks rarely process home sale paperwork as fast as a "person" would. A 3-month timeframe may not fit your schedule.
In the end, fundamentally, buying a foreclosed home is the same as buying a "regular" home -- there's a contract and a closing. Most of the steps in the middle, however, are different.
Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website. 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, but based on October's data, they may not last through the winter.
Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet.
Nationally, mortgage approval standards are tightening.
The data comes from a quarterly survey the Federal Reserve sends to its member banks. The Fed asks senior bank loan officers around the country whether "prime" residential mortgage guidelines had tightened in the last 3 months.
For the period July-September 2009:
Just one bank said its guidelines had loosened.
Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.
Today's borrowers face a host of hurdles including:
In other words, mortgage rates may stay low into 2010, but that won't matter to homeowners that don't meet minimum eligibility standards. With each passing quarter, that list gets smaller.
Therefore, if you're on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too.
Acting sooner is probably better than acting later.
Consider this a last call for FHA Streamline Refinances. Starting next Tuesday, the popular rate-lowering program gets strict on borrowers.
There's 5 days left.
Under the current streamline refi guidelines, FHA homeowners have minimal program eligibility requirements.
Beyond that, everything else goes, practically. There's no income, asset, or job verification with the current FHA Streamline program. Neither is there an appraisal requirement. It doesn't matter if you're 50% underwater.
Until next week, that is.
Beginning November 17, FHA Streamline Refinance applicants must show evidence of income and employment, plus proof of cash required to close. Furthermore, the FHA is limited loan-to-values to 97.75% for homeowners that want to "roll closing costs" into their mortgage.
In areas of declining home values, this may render refinancing impossible.
There's more changes, too, as highlighted by the Federal Housing Commissioner. Read up for yourself, or ask a mortgage professional for help.
If you're a homeowner and you're currently financed through the FHA, it may be prudent to explore the possibility of an FHA Streamline Refi. Mortgage rates are low right now and FHA guidelines are loose.
Starting next week, FHA Streamlines will be a completely different beast.
Mortgage markets were extremely volatile last week, carving out a wide range between Monday and Friday.
Thankfully for rate shoppers, the overall momentum was positive.
Mortgage rates fell for the second time in as many weeks. Rates still sit higher versus their early-October lows.
For pure "news", last week was a busy one:
Combined, the 3 events reinforced the growing belief on Wall Street that the U.S. economy is in recovery, but not yet out of the woods. This particular philosophy has been excellent for mortgage rates, helping to hold conforming 30-year fixed mortgage rates near 5.250 percent since the start of the year.
It helped rates last week, too. But low rates aren't without threats.
For one, the Fed's vote to hold the Fed Funds Rate near 0.000 percent will eventually spark inflation concerns. When it does, mortgage rates will rise. That won't be this week, though.
Actually, nothing may happen this week -- there's not much data to release. Apart from a retail report, a confidence survey and some Fed speakers, the calendar is bare. That, and Wednesday is a federal holiday.
However, without data, markets often trade on things like geopolitics, or energy concerns, or momentum. In other words, don't be lulled into thinking rates won't change this week.
At least for now, the mortgage rates look good. By the end of the week, that may not be the case.
Tax Credit for Homebuyers
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
Tax Credit Versus Tax Deduction
It’s important to remember that the tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!
Higher Income Caps
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sale price of $800,000.
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Remember, the new tax credit program includes a number of details and qualifications. For more information or answers to specific questions, please call or email me today.
In addition, you may be able to benefit from additional housing related provisions, including the following:
Tax Incentives to Spur Energy Savings and Green Jobs
This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.
Landmark Energy Savings
This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.
Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing
This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs. Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8) to increase energy efficiency, including new insulation, windows, and frames.
Expanding Housing Assistance
This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.
As always, if you have any questions about your specific situation or would like to discuss how you may benefit from this program, please call or email me. I’ll be happy to sit down with you.
Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday.
The White House says the President will sign it into law today.
The up-to-$8000 tax credit's expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.
The program's basic eligibility requirements remain the same:
The new law includes some notable updates, however.
For one, the definition of "first-time home buyer" has been expanded to include most homeowners with at least 5 years in their current home. "Move-up" buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.
This means that you don't have to be a true first-time home buyer to claim the "first-time home buyer tax credit".
Other eligibility changes include:
And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction. This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his "normal" tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.
The complete list of qualifying criteria is posted on the IRS website. Be sure to review it with a tax professional to determine your eligibility. Then mark your calendar for April 30, 2010.
It's 5 months away.
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" since the September FOMC meeting and that housing market activity has increased.
It's the third consecutive post-FOMC statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the recession is likely over.
The economy isn't without threats, however, and the Fed identified several in its announcement, including:
The overall tone remained positive, however, as 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.
The Fed plans to wind down its mortgage market support over the next 5 months, reaffirming its March 2010 exit date. For now, Fed support helps hold mortgage rates down.
Mortgage market reaction to the Fed's press release is negative overall. Mortgage rates are rising.
The FOMC's next scheduled meeting is December 15-16, 2009.
The Federal Open Market Committee caps off a scheduled, 2-day meeting today in the nation's capital, its 8th meeting of the year.
The group adjourns at 2:15 PM ET and, as is customary, will issue a press release reviewing its monetary policy and the health of the U.S. economy.
The FOMC's post-meeting statements are brief but comprehensive. They're a window into the mind of the Federal Reserve and Wall Street picks apart every sentence for clues.
It's why FOMC meetings tend to shake up the mortgage markets -- for good and for bad.
After its September 2009 meeting, the FOMC said in its press release:
Since September, the momentum has picked up. Credit risks have reduced further, home sales are surging, and, although unemployment remains high, the Fed remains optimistic about a full economic recovery.
Today's FOMC press release will be closely watched. If the Fed alludes to strong growth with inflation in 2010, mortgage rates should rise. Reference to slower growth should help keep rates steady.
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.
If you're floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.
The housing market continues to steam forward.
As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 8th consecutive monthly gain in September.
It's the longest winning streak in the history of the index and Pending Home Sales are now at their highest levels since December 2006.
A Pending Home Sale is a home under contract to sell, but not yet closed. It's the precursor to an Existing Home Sale.
Trade group data shows that nearly 80 percent of "pending" homes close within 2 months. The majority of those remaining close within months 3 and 4.
When the Pending Home Sales Index rises, it tells us that market activity has picked up. September's data confirms what we've been noticing since February -- the Buyers Market is ending.
With more homes under contract in the marketplace, homebuyers typically face one or more of the following:
1. Competitive, multiple-offer situations 2. Reduced purchase price leverage over sellers 3. Fewer seller concessions
Therefore, if you're buying a home in the next several months, know that the 8-month run in Pending Sales will lead to a run in closed sales. It should result in higher home prices, too
Indeed, we're already seeing it.
Mortgage markets improved last week after a series of hugely volatile trading sessions.
Rates carved out a wide range on the week, culminating in a late-Friday plunge that dropped rates by about 1/8 percent.
It was the first time in 5 weeks that mortgage rates fell.
Volatility like that of last week is nothing new on Wall Street; it's been a running theme in 2009. Volatility occurs when markets don't agree on what's next for the economy and, this year, there's been a lot of disagreement like that.
Data has been inconsistent. Take last week for example.
At 9:00 AM Tuesday morning, the Case-Shiller Index showed home prices rising nationwide. Because many analysts believe housing fueled the recession, strength in the sector is widely construed a positive for the economy.
Mortgage rates rose on the news.
But then, an hour later, the national consumer confidence report revealed a substantial deterioration in sentiment versus the month prior. The data forced Wall Street to do an about-face.
Housing is important to the economy, but it can't affect growth like consumer spending can. When Americans are less confident about their future income, they tend to keep their wallets closed, retarding economic growth.
Holiday Shopping Season is getting underway and the last thing businesses want to see is a suddenly reserved American shopper.
This week, the volatility should continue.
In addition to the release of key employment and housing data, the Federal Open Market Committee has a scheduled 2-day meeting. The group's Wednesday afternoon adjournment will influence mortgage rates.
The Fed is widely expected to keep the Fed Funds Rate in its target range near 0.000 percent, but it won't be what the Fed does that will matter as much as what the Fed says.
If the FOMC's press release shows optimism for the economy, mortgage rates will rise in response. Alternatively, if the Fed appears more dour, rates will fall.
Either way, consider locking your rate before the Wednesday afternoon announcement.
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