As expected, the expiration of the Homebuyer Tax Credit incentive is borrowing buyers from the future. Many of these buyers would have been in a position to purchase in the months ahead, given continued low interest rates and buyer-friendly home prices; this is reflected in recent home sales and mortgage application reports. For this to reverse five things need to happen:
1. Interest rate must remain low. - I believe interest rates will remain low for the unforeseeable future, at least until 2011.
2. Private-sector wages will need to rise, enabling the current employed to better qualify for mortgages. - Most of 2010 job growth has occurred in the government sector, ie. 230,000 Census workers.
3. New jobs must to be created in the private-sector to bring new households into the homebuying ranks. - Economists expect a decline of 115,000 jobs for June.
4. The consumer savings needs to increase thus creating the down payment and closing costs for home purchases. - the savings rate did increase in May from too 4% from 3.8% in April.
5. Consumer Spending must increase. - Latest statistics show consumer spending as flat in May at only .2% growith.
Steve Wood of Insight Economics concludes: "The growing economy, which is now creating private sector jobs with a lengthening workweek, combined with ongoing monetary and fiscal stimulus, has strengthened growth in personal income and wages and salaries. Although still soft, they are much stronger than they were just 6 months ago."
So, it appears that the US economy is modestly advancing on all five points. If it continues to improve it will still take time to create qualified homebuying households.
Monday, June 28, 2010
Friday, June 25, 2010
June 28th Key Mortgage News Bites
The Good,The Bad, & The Ugly
The Good - The Fed's kept the fund rate at the 0%-25% level given slow improvement in the economy.
Good and Bad - Due to record low interest rates of sub-5%, refinancing applications have increased over 51% since the end of April and they account for 74% of all mortgage applications.
The Bad - Existing home sales declined 2.2% in May.
The Ugly - New home sales declined 32.7% in May, the lowest level since this data was tracked in 1962.
Call Today for Personalized Mortgage Services
We are a full service mortgage brokerage firm offering Conventional, FHA, VA, CalPERS, CalSTRS and Jumbo mortgage programs up to $3,000,000.
Tom Drasler - (714) 478-3153 - Lincensed Mortgage Specialist DRE#01775516
"Serving Southern California Since 1996"
The Good - The Fed's kept the fund rate at the 0%-25% level given slow improvement in the economy.
Good and Bad - Due to record low interest rates of sub-5%, refinancing applications have increased over 51% since the end of April and they account for 74% of all mortgage applications.
The Bad - Existing home sales declined 2.2% in May.
The Ugly - New home sales declined 32.7% in May, the lowest level since this data was tracked in 1962.
Call Today for Personalized Mortgage Services
We are a full service mortgage brokerage firm offering Conventional, FHA, VA, CalPERS, CalSTRS and Jumbo mortgage programs up to $3,000,000.
Tom Drasler - (714) 478-3153 - Lincensed Mortgage Specialist DRE#01775516
"Serving Southern California Since 1996"
Modified Loans See High Default Rate
Credit Rating firms forecast 65% to75% of borrowers who receive lower mortgage payments as a result of loan modifications will default within 12 months. These are loan modifications supported under President Obama's Home Affordable Modification Program (HAMP).
The median debt to income ratio using debt payments to pretax income, still averages 64%, well above today's conventional lending standards of 45%.
Experts believe these failures are likely to be high largely because most of the borrowers are mired in credit-card debt, car loans and other obligations, leaving little left over for
The Treasury Department has said even with the modifications it often means little money is left over for food, clothing or such emergency expenses as medical care and car repairs.
The median debt to income ratio using debt payments to pretax income, still averages 64%, well above today's conventional lending standards of 45%.
Experts believe these failures are likely to be high largely because most of the borrowers are mired in credit-card debt, car loans and other obligations, leaving little left over for
The Treasury Department has said even with the modifications it often means little money is left over for food, clothing or such emergency expenses as medical care and car repairs.
FHA Reform Act - Update
H.R. 5072 & H.R. 4213 - FHA Reform Act of 2010
The House overwhelmingly passed reform legislation on June 11th that is believed will strengthen the FHA loan insurance program while keeping it available and affordable to responsible home buyers. Changes include:
• FHA to raise monthly insurance premiums and lower up-front premiums that place burdens on cash strapped borrowers.
• Amendment to increase FHA minimum down payment requirement from 3.5% to 5% was defeated; if approved it is estimated 300,000 homebuyers would be disenfranchised.
• Home Buyer Tax Credit CLOSING deadline is extended from June 30th to September 30th; Amendment does NOT extend the deadline for home buyers to qualify.
• The extension is expected to allow over 180,000 transactions to close that would not have otherwise made the June 30th deadline.
The House overwhelmingly passed reform legislation on June 11th that is believed will strengthen the FHA loan insurance program while keeping it available and affordable to responsible home buyers. Changes include:
• FHA to raise monthly insurance premiums and lower up-front premiums that place burdens on cash strapped borrowers.
• Amendment to increase FHA minimum down payment requirement from 3.5% to 5% was defeated; if approved it is estimated 300,000 homebuyers would be disenfranchised.
• Home Buyer Tax Credit CLOSING deadline is extended from June 30th to September 30th; Amendment does NOT extend the deadline for home buyers to qualify.
• The extension is expected to allow over 180,000 transactions to close that would not have otherwise made the June 30th deadline.
Friday, September 4, 2009
Mortgage Rates Fall, Boost Sales
Interest rates on home mortgages dropped this week, with the 30-year fixed-rate mortgage averaging 5.08%, according to Freddie Mac's weekly survey of conforming mortgages.
The 30-year fixed-rate mortgage averaged 5.14% last week and 6.35% a year ago. Fifteen-year fixed-rate mortgages also dropped, averaging 4.54% for the week ending Sept. 3, down from 4.58% last week. The mortgage averaged 5.9% a year ago.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.59%, down from 4.67% last week and 5.97% a year ago. And one-year Treasury-indexed ARMs averaged 4.62%, down from 4.69% last week and from 5.15% a year ago.
"Bond yields pushed mortgage rates slightly lower this week," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement. "Low mortgage rates are helping to keep housing very affordable."
Seven of the top eight most affordable months, as measured by the National Association of Realtors' Housing Affordability Index, have taken place during 2009, he said. The NAR's index dates back to 1971.
"As a result, pending sales of existing homes rose for the sixth month in a row in July, a trend unseen since the NAR began reporting data in 2001. Moreover, July's sales were the strongest since June 2007," Mr. Nothaft said.
The NAR's pending-home-sales index rose 3.2% for the month and came in 12% higher than July 2008, the Washington-based trade group reported on Monday.
In a separate release Wednesday, the Mortgage Bankers Association reported that mortgage applications were down a seasonally adjusted 2.2% for the week of Aug. 28 compared with the prior week.
The 30-year fixed-rate mortgage averaged 5.14% last week and 6.35% a year ago. Fifteen-year fixed-rate mortgages also dropped, averaging 4.54% for the week ending Sept. 3, down from 4.58% last week. The mortgage averaged 5.9% a year ago.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.59%, down from 4.67% last week and 5.97% a year ago. And one-year Treasury-indexed ARMs averaged 4.62%, down from 4.69% last week and from 5.15% a year ago.
"Bond yields pushed mortgage rates slightly lower this week," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement. "Low mortgage rates are helping to keep housing very affordable."
Seven of the top eight most affordable months, as measured by the National Association of Realtors' Housing Affordability Index, have taken place during 2009, he said. The NAR's index dates back to 1971.
"As a result, pending sales of existing homes rose for the sixth month in a row in July, a trend unseen since the NAR began reporting data in 2001. Moreover, July's sales were the strongest since June 2007," Mr. Nothaft said.
The NAR's pending-home-sales index rose 3.2% for the month and came in 12% higher than July 2008, the Washington-based trade group reported on Monday.
In a separate release Wednesday, the Mortgage Bankers Association reported that mortgage applications were down a seasonally adjusted 2.2% for the week of Aug. 28 compared with the prior week.
Thursday, September 3, 2009
Yes, the Housing Market Has Rarely Looked Better
By JAMES B. STEWART, Wall Street Journal
Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.
Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.
Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.
In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.
Unless you're really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.
There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.
But there's a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.
Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.
Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.
Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.
In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.
Unless you're really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.
There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.
But there's a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.
Saturday, August 29, 2009
Fewer Catching Up on Lapsed Mortgages
I believe this article illustrates the challenge and reluctance banks have with extending loan modification terms to borrowers who are delinquent in making their mortgage payments. Some sobering facts.....
By JAMES R. HAGERTY, Wall Street Journal
Homeowners who fall behind on their mortgage payments have become much less likely to catch up again, a new study shows.
The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month.
Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2%. In the subprime category, the rate has declined to 5.3% from 19.4%.
"The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch.
Because borrowers are less willing or able to catch up on payments, foreclosures are likely to remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1.
Cure rates have sunk despite the Obama administration's prodding of banks to ease terms for millions of borrowers to try to prevent foreclosures. Without those loan-modification efforts, cure rates would be even lower.
Job losses have left some borrowers unable to make payments. In addition, Mr. Slump said, some who could continue to make payments probably are no longer willing to. That may be because the values of their homes have fallen below their loan balances and they see little hope of ever recovering their investments.
What's more, because of widespread backlogs and delays in the foreclosure process, people who quit paying may be able to stay in their homes for more than a year before being evicted.
The Fitch study covers about $1.7 trillion of mortgages held in securities, representing about 16% of U.S. mortgages outstanding.
By JAMES R. HAGERTY, Wall Street Journal
Homeowners who fall behind on their mortgage payments have become much less likely to catch up again, a new study shows.
The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month.
Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2%. In the subprime category, the rate has declined to 5.3% from 19.4%.
"The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch.
Because borrowers are less willing or able to catch up on payments, foreclosures are likely to remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1.
Cure rates have sunk despite the Obama administration's prodding of banks to ease terms for millions of borrowers to try to prevent foreclosures. Without those loan-modification efforts, cure rates would be even lower.
Job losses have left some borrowers unable to make payments. In addition, Mr. Slump said, some who could continue to make payments probably are no longer willing to. That may be because the values of their homes have fallen below their loan balances and they see little hope of ever recovering their investments.
What's more, because of widespread backlogs and delays in the foreclosure process, people who quit paying may be able to stay in their homes for more than a year before being evicted.
The Fitch study covers about $1.7 trillion of mortgages held in securities, representing about 16% of U.S. mortgages outstanding.
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