Is an Assumable Mortgage Right for You?

Is an Assumable Mortgage Right for You?

Homebuyers Should Understand Private Mortgage Insurance

Homebuyers Should Understand Private Mortgage Insurance

U.S. Households Need $115K/year for Median-Priced Home

U.S. Households Need $115K/year for Median-Priced Home

White House Announces Homeownership Actions

White House Announces Homeownership Actions

A Federal Reserve World, And We're All Living in It

Keeping you Updated on the Market
For the week of April 6, 2014

MARKET RECAP A Federal Reserve World, And We're All Living in It When the conversation turns to monetary policy and the Federal Reserve, the natural reaction is for eyes to glaze over. This is understandable. In the past, monetary policy and the Fed were supporting players who impinged little on the day-to-day activity in the housing and mortgage markets. That's hardly the case today. Over the past few years, since the 2009 recession, the Fed has morphed into a leading player. Therefore, we have no choice but to follow the Fed. “You might not be interested in war, but war is interested in you,” is a quote attributed to Russian revolutionary Leon Trosky. We can modify Trosky's quote to say, “We might not be interested in the Federal Reserve, but the Federal Reserve is interested in us.” For this reason, we need to be interested in the Fed, which is why we spend considerable space on Fed commentary. Its policies directly influence home prices and mortgage rates. Now, it appears the Fed is backing off raising interest rates sooner than later. A couple weeks ago, we mentioned that new Fed Chair Janet Yellen had overtly hinted that interest rates would begin rising sometime in 2015. We speculated by mid-July. We were even more confident that 5% on the 30-year fixed rate loan was likely by end of this year. Indeed, mortgage rates rose – in fits and spurts – through most of March. The latest survey from Bankrate.com shows the national average on the 30-year loan at 4.54%. Freddie Mac's survey has the 30-year loan at 4.41%. Both are the highest they've been since late January. That said, we're rethinking our position. This past week, the Fed had what you could call a “wait-a-minute” moment. Fed Chair Yellen hedged her previous commentary, adding we will need stimulus for “some time.” This suggests that the economy has yet to gain sufficient traction, and appears unlikely to do so in the near future. In other words, 5% on the 30-year loan isn't quite the done deal that it seemed a couple weeks back. Since the recession ended, economic growth and job growth have remained stubbornly sluggish. A recent commentary from the Cleveland Branch of the Federal Reserve offers some insight into why this is: insufficient investment. Many economists focus on consumption as the main driver of the economy. Unfortunately, they under-weigh the importance of production. The fact is that we all have to produce in order to consume. We work first (produce), get paid, and then consume (credit not withstanding). Production is predicated on investment: We need tools (or capital) to produce. With the Fed pushing back raising interest rates, lower mortgage rates could prevail longer than we initially expected at the beginning of the year. Of course, the one caveat is that if job growth, investment, and consumption unexpectedly pick up, the Fed could signal a new direction, which would again alter interest-rate expectations.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Consumer Credit (February)	Mon., April 7 3:00 pm, ET	$12 Billion (Increase)	Important. Rising student loans outstanding could be a negative for the entry-level home market.
Mortgage Applications	Wed., April 9, 7:00 am, ET	None	Important. Purchase applications continue to inch higher, but no meaningful trend has been established.
Federal Reserve FOMC Meeting Minutes	Wed., April 9, 2:00 pm, ET	None	Moderately Important. The Fed is expected to reiterate its commitment to wrap up tapering by the end of the year.
Producer Price Index (March)	Fri., April 11 8:30 am, ET	All Goods: 0.1% (Increase) Core: 0.1% (Increase)	Moderately Important. Inflation at the producer level remains sedate and won't move interest rates.

 

A More Accommodating Market Than We Think One of the more prevalent complaints since the housing-market bubble burst in 2009 is how difficult it has become to get a mortgage loan. Compared to the early-to-mid-2000s, you could say that's true. The reality is – from a historical perspective – that the mortgage markets is more accommodating than many people think. This point was driven home in a recent Wall Street Journal article, which basically stated that getting a loan really isn't so tough. This is a point worth driving home to our clients. To be sure, the additional paperwork and verification required today compared to the recent past isn't something anyone particularly enjoys, but it's not unreasonable either. Last week, we explicated the upside of a housing market lead by mortgage-financed purchases. The good news is that the reality of obtaining a mortgage is easier than the wide-spread perception, which is why it's important to change the wide-spread perception. We're likely preaching to the choir on these points, but sometimes its worthwhile to do a little preaching to drive home an obvious point that isn't obvious to everyone.

Mortgage Matters -Update for the week of August 19, 2013

Keeping you updated on the market! For the week of August 19, 2013

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MARKET RECAP Optimism Reigns, Tread Cautiously  Homebuilders haven't felt this upbeat since the waning days of 2005. We know this because the NAHB/Wells Fargo Homebuilder Sentiment Index hit 59 this month, a number last seen nearly eight years ago. Moreover, it appears unlikely optimism will fade anytime soon: Many homebuilders are reporting higher current sales and stronger pricing. Spirits are always buttressed when buyers are willing to enter the market when prices are rising. On the existing-home side, the logjam of tight supply appears to be loosening. Nationally, the number of existing homes for sale remains 5% lower than the number that existed this time last year. Inventory, though, was up 1.4% in June. In many local markets inventory is being drawn in by persistent price appreciation. This is no surprise: rising prices always draw more supply to market. Rising prices have also drawn more housing scrutiny. This, too, is no surprise. The closely followed S&P/Case-Shiller Home Price Index is up 12.1% year over year. Of course, real estate markets are local markets, and in many local markets gains far exceed the national numbers ( Las Vegas and Phoenix come ready to mind). Double-digit average annual price increases are unsustainable over the long term. Price growth within the 2%-to-5% range is the norm. Therefore, we're not surprised to see growing speculation on the prospects of another housing bubble. On that front, we're not terribly concerned. We don't think housing is even close to approaching the bubble that developed seven years ago. Much of the strong price gains we're seeing are off a severely depressed base (again Las Vegas and Phoenix come to mind). When the bigger picture is brought into focus, prices nationally remain reasonable. Since the housing bubble burst in 2007, people continually question whether housing is a safe investment? This is understandable: The perception before the bubble burst was that houses were always a safe investment. It's important to keep in mind that safety, reward, and risk aren't imbedded in an asset class – houses, stocks, bond, etc. – they're embedded in time and price. A house purchased in 2000 was safe and offered a lot of reward with little risk. By 2007, the paradigm had reversed – houses were unsafe and risk was high. As a general rule, the longer the uptrend is sustained, the more risky an asset class becomes. We liken today's housing market to the middle innings of a baseball: There is still more action (price gains) ahead. But there is also plenty of action already behind us, which is why when housing was skimming along the bottom (at the beginning of the game), we continually pounded the table to get in the game.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Mortgage Applications	Wed., Aug. 21, 7:00 am, ET	None	Important. Rising rates could stimulate higher purchase-loan activity.
Existing Home Sales (July)	Wed., Aug. 21, 7:00 am, ET	5.12 Million (Annualized)	Important. Rising inventory is helping to lift sales volume.
Federal Reserve FOMC Minutes	Wed., Aug. 21, 2:00 pm, ET	None	Important. Hawkish commentary on low rates and bond purchases will push interest rates higher.
New Home Sales (July)	Fri., Aug. 23, 10:00 am, ET	485,000 (Annualized)	Important. Sales are expected to ease in July, but the long-term trend remains on an up-sloping trajectory.

 

Pressure is Mounting For the past six weeks, mortgage rates have been placid – trending in a very tight band. Next week, they could break out of the upper band. We say that because the 10-year U.S. Treasury note – a benchmark lending rate – has broken out to the upside. As the 10-year note goes, so, too, usually goes the 30-year fixed-rate mortgage. Over the past few months, we've frequently opined that the days of the 3.5% 30-year loan that prevailed earlier this year were gone and were unlikely to return anytime soon. At the same time, we've opined that rates are primed to rise. We continue to hold these opinions to this day. That said, we don't see mortgage rates moving materially higher in the short term. Economic growth remains anemic, and job growth continues to lag behind the Federal Reserve's target rate. Therefore, the institutional imperative supports keeping rates low. Our assessment of the mortgage-rate environment points to mildly rising rates (perhaps five to 10 basis points). Longer-term – over the next year – the probabilities overwhelming point to rates moving higher, which is why we continue to say that the risk in this market resides in procrastination.

Article courtesy of Patti Wilson W.J. Bradley.

Keeping you updated on the market!

Keeping you updated on the market!
For the week of

March 18, 2013

MARKET RECAP We've been warning over the past few months that accelerating job growth would lead to higher mortgage rates. That's exactly what's occurred. Last Friday, the Commerce Department released its employment report, which showed 236,000 new jobs were created, topping most economists' estimates. The surge in job creation dropped the unemployment rate to 7.7% from 7.9%. The rate of job growth frequently reflects the rate of economic growth. When economic growth accelerates, so does the demand for loanable funds. Interest rates, in turn, rise. But they rise not only because of increased demand, they rise also because economic growth stimulates inflation – a key component in interest rates. We weren't surprised, then, to see the spike in mortgage rates – particularly in the 30-year fixed-rate loan – that occurred this past week after the release of the employment data. Many lenders are concerned that rising rates will take the steam out of the housing recovery. We are more sanguine. As long as rising interest rates are accompanied by rising job growth, the impact will be minimal. Low rates have done their job, and employment and economic growth are the most important factors to maintaining the housing recovery at this point. Rising rates will slow refinances, but we expect purchase activity to pick up the slack. More people working, and more people working at better-paying jobs, means more people will qualify for a loan. Just as important, they'll qualify for a higher-rate loan that they can still comfortably service. In short, we don't see rising rates as an impending disaster. The robust interest by investors in single-family homes will also help keep the housing market moving on a northeast trajectory. Low purchase prices and the potential for capital gains have pulled many real estate-minded investors into the market. We've mentioned in the past how large institutional investors have acquired large swaths of single-family homes. That said, most people still prefer to own than to rent. Surveys compiled by the National Association of Home Builders (as well as other groups) find that most people overwhelming want to own a home. This shouldn't come as a surprise; neighborhoods of owners tend to be more stable and better-maintained than neighborhoods of renters. We're not disparaging investors (or renters). In fact, they are doing the market a service. But over time, we expect more of these rental properties to transition to owner-occupied properties – and that's a good thing.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Home Builder Index (March)	Mon., March 18, 10:00 am, ET	47 Index	Important. Improved job prospects should raise builder confidence.
Housing Starts (February)	Tues., March 19, 8:30 am, ET	910,000 Units (Annualized)	Important. Rising starts reflect builder optimism. Rising starts are also a key component in economic growth.
Mortgage Applications	Wed., March 20, 7:00 am, ET	None	Important. Applications fell on rising rates, but rates should level out this week.
Federal Reserve FOMC Meeting	Wed., March 20, 2:00 pm, ET	Federal Funds Rates: 0.0% to 0.25%	Important. There will be no change in the Fed's low-rate bias, but their could be hints of a potential change in bias.
Existing Home Sales (February)	Thurs., March 21, 10:00 am, ET	5 Million Units (Annualized)	Important. Volume is picking up but remains restrained by low inventory.

Focus on Affordability At 2.07 million units, housing inventory is at its sixth-lowest level in 30 years, according to Capital Economics. Low inventory has helped with rising home prices. And even though prices have been rising, affordability remains high. The NAR's Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home based on the most recent monthly price and income data. We've read many predictions that high affordability will persist indefinitely. LPS Applied Analytics, for one, believes home values could rise an additional 35% before affordability becomes an issue. We're a little more circumspect. Bank of America recently revised its expectations for home prices, expecting prices at the national level to rise 8% in 2013. A few months ago, Bank of America was forecasting a 4.7% increase. Given rising interest in single-family homes, we don't think Bank of America's expectations are unreasonable. Home prices could very well rise 8%, but it's highly unlikely personal income will rise at the same rate. At the same time, mortgage rates will also rise with more job creation, which will make mortgages more expensive. The point we want to emphasis is that, yes, homes are still very affordable, but there is no guarantee they will remain so. In fact, it's financially risky to expect the market that exists today – in both houses and mortgages – to exist tomorrow.

Housing Crisis to End Soon!

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.
Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.
However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.
Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.
Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”
In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.
Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.