Archive for the 'Mortgages' Category
Mortgage Rates are Low
Mortgage rates are currently low. Very low.
It’s common for well qualified buyers to get rates below 5%, and we’ve heard of some rates as low as 4.25% on 30-year fixed mortgages with no points. We even saw a sign by the road advertising a 3.99% rate, though it was not clear what the other terms would be.
Here’s a chart from Mortgage-X.com showing rates going back to 1963, which is further than other charts we’ve seen.
Reproduced with the permission of Mortgage-X.com
Our Thoughts on Low Mortgage Rates
1. People shouldn’t buy houses because mortgage rates are low. Buying a home is a big commitment of time and money, so homeowners need to be in it for the right reasons. Securing a low mortgage rate might be a nice bonus, but it should not be used to justify a purchase – you need to want to own a home.
2. Those in the market for a new home can take advantage of the low rates in different ways. One option is to pay less each month for the same home they would have bought no matter what the rates. Another option is to get a more expensive home for the same monthly payment they would have had before rates fell so low. Finally, they could get a shorter loan (15-years or 20-years instead of 30-years) so that they can build equity faster and pay dramatically less interest overall.
3. Existing home owners may want to consider refinancing their current mortgage. There have been a couple articles recently (CNN, Wall Street Journal) about how refinancings are on the rise again, but that many buyers can’t take advantage because of strict lending requirements (their credit is too poor) and appraisal values (their home values have fallen and they don’t have enough equity).
4. Will rates go even lower? Nobody knows. At some point mortgage rates really can’t go any lower. The two primary inputs into the rates are the interest rate of the 10-year Treasury Bond and the spread above the Treasury that lenders/investors demand. The 10-year Treasury finished yesterday at 2.64%, which is very low from a historical perspective, but it’s possible it could go even lower.
As always, the place to start with everything mortgage-related is with a mortgage professional. They’ll be able to evaluate your specific situation to let you know which options are available to you. We would be happy to pass on the names of mortgage people we’ve used if anyone is interested.
Real Estate Stories of the Past Couple Weeks
There have been a number of interesting articles about real estate in the financial press over the past couple weeks. Here’s a quick wrap-up of what you may have missed while you were off for the holidays…
Wall Street Journal, December 23rd: Data from the National Association of Realtors shows that Home Sales, Prices Brighten (subscription required). Though the current data is positive, the author expresses concern about “a continuing flood of foreclosures and the eventual withdrawal of government life support.” They note that the housing has been strongest in “middle-class homes with short commutes,” something that rings true in the Greater Hartford markets.
Wall Street Journal, December 24th: The next day, the headlines reversed to New-Home Sales Drop 11.3% as Impact of Stimulus Fades (Subscription Required). This time the data came from the Commerce Department, which noted that the measure was very volatile (it had risen 7.4% the previous month) and new home sales make up less than 15% of total home sales. And in our area, new home sales are far less than 15% of the total.
Wall Street Journal, December 24th: On the same page, we learn that Resession Alters Migration Pattern in US. Although this story isn’t directly about real estate, it is interesting to consider the implication of people moving around the country on local real estate markets. A large map shows the population changes by state for 2004-2005 and then for 2008-2009. Florida and Nevada showed the most dramatic shifts, from strongly growing to modestly decreasing populations. Connecticut appears to be consistent across the two time periods with both reflecting losses of between 0 and 50,000 people.
Wall Street Journal, December 29th: Everyone who loves a good house hunting story definitely needs to read this tale as A Picky Home Buyer Pursues an Epic Hunt for ‘the One’ in the San Francisco Bay Area. It took over two years and 298 properties for Lidia and Doug Pringle to find the right place to call home. Wow.
Calculated Risk, December 30th: During the past two declines in home values (early 1980s and early 1990s), prices did not bottom until the unemployment rate peaked.
The Big Picture, December 31st: Morgan Stanley released a research piece suggesting that the 10 Year Treasury could rise to 5.5% in 2010. What caught our eye was that they estimated that the higher Treasury rates could push rates for 30-year fixed mortgages up to between 7.5% and 8%. These rates are, of course, much higher than buyers are used to seeing. The commentary basically says that Morgan Stanley must be concerned about inflation increasing, and that the charts the commentators use to look at the market show strong increases in inflation expectations over the past year.
Wall Street Journal, December 31st: The Department of Housing and Urban Development have had Rules to Clarify Cost of Mortgages in the works for a while, tightening the requirements around Good Faith Estimates that lenders give to buyers when quoting mortgage rates. Their overall goal is to force lenders to report all of their fees and rates in a way that allows borrowers to more easily compare rates between lenders. It will be interesting to see how this transition goes as lenders and real estate attorneys adjust to new regulations.
Wall Street Journal Blogs, January 1st: The Five Key Housing Issues to Watch in 2010 are 1. mortgage rates; 2. the future of Fannie, Freddie, and the FHA; 3. loan modifications; 4. more loan resets; and 5. the tax credit.
New York Times, January 1st: Some feel that the Federal Government’s effort to modify loans is Adding to Housing Woes. They argue that allowing homeowners to remain in their homes by modifying their mortgage has been counterproductive. Homeowners have their hopes falsely raised and waste money trying to keep a home they simply cannot afford before finally defaulting on the modified mortgage.
So that’s the word on The Street as the real estate markets move into 2010. The headlines seem to have a negative bias, highlighting concerning data, unsuccessful recovery programs, and the unfortunate reality of many Americans struggling. We’ll have to see how it all plays out here in Greater Hartford. And as always we’ll hope for the best and plan for the worst.
National Real Estate News Roundup
There have been a few interesting real estate stories and announcements around the nation this week. But first, the changing seasons along tree-lined Farmington Avenue in West Hartford Center.
Today’s Wall Street Journal has a piece on Shadow Inventory (Subscription Required), which are homes that are not currently on the market but are expected to be listed for sale in the near future. They focus on foreclosures, and found about 1.5 million mortgages currently in the foreclosure process and an additional 1.2 million delinquent enough that banks could initiate foreclosure proceedings. To put this in perspective, a recent National Association of Realtors press release announced that the seasonally adjusted rate of existing home sales was about 5.24 million in July. So lenders could potentially take ownership of enough homes (2.7 million) to represent more than 6 months of inventory at the pace of sales today. Presumably this would impact other areas more than Greater Hartford. However, it’s difficult to track distressed properties until they are listed for sale, so we can’t be sure.
The Mortgage Bankers Association (MBA) reports that mortgage rates have been falling. Their latest survey shows that rates for 30 year fixed mortgages have fallen below 5.00% nationally for loans with 20% down. Our local rates seem to be just above 5% when looking at the annual percentage rate (APR), and have also been falling.
Money Magazine wrote a quick piece about the basics of FHA mortgages. We’ve been seeing a lot of buyers using these types of mortgages since it’s just about the only way to buy a home with less than a 10% downpayment (you’re allowed to do 3.5%). Specifically, they touch on the more difficult home inspection and the increased fees/expenses associated with the program. Both are important considerations, though for buyers that don’t have the cash to qualify for a conventional loan they are just another part of the cost of buying.
Finally, there is much speculation and debate about whether or not Congress will extend the First Time Buyer Tax Credit. Financial blog Calculated Risk gathered up the opinions of various economists, painting the program as a poor use of taxpayer resources. The essence of the argument is that many of the people claiming the credit would have bought a home anyway, so also giving them $8,000 is a waste of money. Supporting the position is a National Association of Realtors press release stating that of the 1.8 million to 2.0 million that will claim the credit this year, only 350,000 of them would not have purchased without the credit.
Will You Take Advantage of the $8,000 First Time Buyer Credit?
I’ve been working with a lot of first time buyers this year. Many of them have been motivated by the $8,000 first time buyer tax credit that the government is offering. A good number of them have already closed on a property and are set to receive their refund next year when they submit their Federal Income Taxes.
Some of my buyers are still looking though. They are waiting for the right house. Or they found a house and it’s fallen through for inspection reasons, so they’re back out there again. As an aside, this is more common than you’d think; I have 4 buyers looking right now that are in this inspection situation.
Anyway, in order to take advantage of the $8,000 tax credit being offered this year, a first time buyer needs to close on that property on or before November 30, 2009. That gives us approximately 3 months remaining to find a property and close before this opportunity goes away.
Some buyers are asking me if I think there will be a similar program next year. I honestly don’t know. Last year there was a buyer incentive program, but it changed for 2009. I don’t know what next year will bring and if Congress will decide we still need this type of housing stimulus option.
Buyers are also asking me if they should buy this year, simply because of the $8,000 credit. I honestly don’t know that one either. Each person is different, so that needs to be assessed individually.
But what do we need to do if you do want to buy this year and be able to take advantage of the credit? Er, get moving! Closing on a property typically takes anywhere from 30-60 days. That takes into account how long it takes to get a mortgage processed, in addition to giving most sellers enough time to move on to their next place. Working backwards from November 30, that means you should have an accepted contract no later than October 1, 2009.
I would actually recommend trying to have something in place before October 1 though, for a few reasons.
First, mortgages have been taking longer to process recently due to stricter underwriting guidelines, particularly FHA loans, as well as an increased volume. I believe this is only going to get worse in the next few months as a slew of buyers try to jam in a purchase before November 30 and lenders continue to deal with more underwriting guidelines and leaner staff levels.
Second, home inspection issues could cause a delay or the deal to blow up, so you may need to start over.
Third, closing attorneys have limited capacity and good closing attorneys are going to find themselves slammed in November. People normally like to try and close at the end of the month (or the Friday closest to the end of the month) and this tax credit situation is going to only make it worse for November.
If you want to take advantage of the credit, I would recommend trying to close in the middle of November, or sooner, if at all possible. That way if you have problems with your mortgage, there is some wiggle room for you to still get the transaction closed before the end of the month. This would most likely not be possible if you’re scheduling a November 27 or 30 closing and there are issues. And how annoying would it be if you’ve planned to get everything done so you can take advantage of the credit and then you miss the deadline at the very end? Uh, very. So budget enough time if you can.
Happy property hunting!
Mortgage Rates Increasing on Inflation Fears
Mortgage rates have ticked upward over the past few days in response to market activity around the 10-year Treasury Bond. According to BankRate.com, the average interest rate for a 30-year fixed mortgage has increased from 5.00% to 5.39% in just a few days.
An article in today’s Wall Street Journal goes so far as to proclaim that “Mortgage Rates Surge, Sap Hopes.” They cite similar interest rate figures from a different source and quote two people from Greater Hartford about the impact on their refinancing activities. One, a mortgage banker, has put about 50 refinancings on hold because the higher rates make the deals non-economic.
Conversations about the economy have been focused on avoiding a recession over the past year. Last February we wrote a post about the balance between recession and inflation, tying it to mortgage rates. At that time the Federal Reserve was lowering short-term interest rates in hopes of avoiding a recession. We reached a critical point in September, resulting in bank bailouts and other Federal interventions to support the economy.
The trigger for the recent rise in interest rates seems to be increased confidence in the economy. The stock markets have rallied since hitting lows in early March, suggesting that investors are more willing to take on risk. Moving into riskier investments has two primary consequences:
1. Selling pressure on the safe-haven securities that investors poured their money into when the future looked bleak. US Treasury Bonds are a major safe-haven asset due to widespread belief that the US Federal Government cannot default on its obligations. Selling pressure on bonds causes their value to go down, but their yield (interest rate) to rise.
2. Concern about future demand for the tremendous amount of US Federal Government debt, which takes the form of US Treasury Bonds. There is already a considerable supply available in the market, and more is scheduled to be auctioned to support the various stimulus programs. If demand decreases, then the government will be forced to offer higher interest rates in order to attract buyers.
Investors have reversed course and are now concerned that the Federal Government is doing too much. They are creating too large a deficit. They are issuing too much debt. They are ultimately printing too much money. Investors fear that all of these things will lead to inflation. Yesterday’s Wall Street Journal cover article goes into more detail about how all these pieces interact.
So what is a home buyer to do?
The first thing to realize is that even after the recent increase, mortgage rates are still very attractive from a historical perspective. We’ve had a number of years of low rates that were enabled by all of the fancy risk-spreading techniques that ultimately collapsed.
Looking back since 1990, Federal Housing Finance Board data shows that mortgage rates used to be higher – generally 7% or above before 2002. Maybe they’ll head back to those levels; maybe they won’t.
Buyers currently engaged in a search should make sure their price range is appropriate for the current interest rates, and would still be okay if rates rose a little more. You don’t want to be in the position where you find a home at the top of your price range but can no longer afford it because of a mortgage rate increase.
If buying a home is important to you, then you should proceed as planned. Maybe you won’t lock in your rate at the absolute low. But in 3 years you might be very happy with the rate you received. And if this is a temporary spike, and rates move lower again, you will always have the option to refinance.