Mortgage Market Update

The Federal Open Market Committee holds a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.

The FOMC is the government’s monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate. 

The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.

It’s the lowest Fed Funds Rate in history.

Because the Fed Funds Rate is near zero, it’s accommodative of economic growth, spurring businesses and consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.

The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant.  It’s expect that the Fed will reiterate that message in today’s post-meeting press release.

However, just because the Fed Funds Rate won’t be changing today, that doesn’t mean that mortgage rates won’t.  Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.

Mortgage rates in Florida tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.

When Ben Bernanke & Co. speak, Wall Street listens. 

The Fed’s press release today will be dissected and analyzed.  Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.

Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock before 2:15 PM ET today.

Mortgage markets improved again last week on softer-than-expected economic data, punctuated by Friday morning’s weak jobs report. Conforming mortgage rates in Florida dropped on the news, making new, all-time lows.

Mortgage rates have been on an extended rally dating back to mid-April.

This week, there’s a lot of data and news due for release, the most influential to markets of which is the Federal Open Market Committee’s scheduled policy meeting.

8 times annually, the FOMC meets to discuss the nation’s monetary policy with respect to the current and projected U.S. economic conditions. Sometimes the FOMC takes action on the economy. Other times, it does not.

Either way, Fed meetings are market movers and it’s a gamble to float a mortgage rate ahead of an FOMC get-together.

There’s other’s stories to watch this week, too. Each has the ability to change mortgage rates.

• Tuesday : FOMC meeting; Consumer Confidence data
• Thursday : Jobless Claims
• Friday : Retail Sales; Consumer Price Index

It’s a busy week on Wall Street, to be sure, and rate shoppers would do well to pay attention. Not only can the FOMC meeting change mortgage rates for every product in every market, but it can also change the outlook for mortgage rates going forward.

Rates are at an all-time low and low rates can’t last forever. We’re in the middle of a Refi Boom today and, soon, the boom will be over.

If you haven’t spoken to a loan officer about refinancing your home, or locking a mortgage rate, your best time to make the call is prior to the FOMC’s Tuesday afternoon adjournment at 2:15 PM ET. Mortgage rates will get jumpy leading up to the meeting, and will most certainly be volatile afterward.

According the Federal Home Finance Agency’s Home Price Index, home values are now off just 12.5 percent from their April 2007 peak nationwide.  This, after a half-percent monthly increase in prices in May, on average.

Given the state of the market since April 2007, the Home Price Index results are a positive for both the housing market and the economy, but we have to remember that May’s half-point increase is an average, and not specific to a particular area.

In contrast to “national markets”, the real estate markets in which you and I live are decidedly local.  It’s a major difference and the distinction renders the Home Price Index somewhat less important. 

After all, the HPI doesn’t account for housing activity in individual neighborhoods , nor does it track value across cities like Jacksonville. Instead, it summarizes data in giant chunks of geography.

A quick look at the HPI regional data proves the point. Of the HPI’s 9 tracked regions, only one was within one-tenth of one percent of the national, half-point average.  The others varied by as much 1.3 percent.

As a sample:

• Mountain Region : + 1.7 percent
• New England : + 0.2 percent
• South Atlantic : +1.0 percent

And this is on a regional basis. The HPI’s applicability to state, city and neighborhood markets is even less appropriate.

Real estate values cannot be captured in a national survey. For home buyers and seller, what matters is the economics of a block, on a street, in a neighborhood.  That type of granularity can’t be tracked in a report like the Home Price Index.

The best place to get that data is from a local real estate agent that knows the market well.

Mortgage rates have been falling since April but that momentum could reverse tomorrow.

The Bureau of Labor Statistics releases the July jobs report at 8:30 A.M. ET Friday. With a stronger-than-expected reading, mortgage rates should rise, harming home affordability in Florida. Jobs are a keystone in economic growth and growth is tied to rates.

Earlier this year, job growth went positive and reached as far north as 431,000 jobs created in May. That figure slipped negative last month, however, as the temporary, decennial census workers left the workforce.

Jobs matter to the U.S. economy. Among other concerns, unemployed Americans spend less on everyday goods and services, and are more likely to stop payments on a mortgage. These effects retard the economy, spur foreclosures, and harm home values.

The reverse is also true. More workers means more disposable dollars and, in theory, a stronger economy.

Analysts expect that a net 65,000 jobs were lost in July. Wall Street — and Main Street — have a big interest in those results.

Poor jobs data would likely result in a stock market sell-off which would, in turn, boost the value of government-backed mortgage bonds. This is because bonds tend to perform well when the economy is sagging and higher bond prices mean lower mortgage rates.

Strong jobs data, however, would likely push stock markets up and bond markets down. This would cause mortgage rates to rise. The stronger the employment figures, the higher mortgage rates should go.

So, if you’re happy with where mortgage rates are today and you’re concerned about what the jobs report may do to them tomorrow, consider talking to your loan officer about locking your rate as soon as possible.

Once the jobs report is released, it may be too late.

The Pending Home Sales Index failed to rebound from a cliff-dive in May, falling by another 3 percent more in June.  The index remains at record-low levels.

A “pending home sale” is a home under contract to sell, but not yet closed. The data is culled from local real estate associations and large brokers and accounts for 20 percent of all purchase transactions in a given month nationwide.

The Pending Home Sales Index is a future indicator for the housing market; there is a high correlation between the PHSI and the monthly Existing Home Sales report.  This is because of the relatively large sample set used for the PHSI, and because 80 percent of homes under contract close within 60 days, according to the National Association of Realtors.

June’s Pending Home Sales Index is weak by most measures, but if you’re a home buyer in Ponte Vedra , the headlines aren’t so bad. Fewer home sales can push negotiation leverage to the buy-side of a transaction.

Plus, there’s other positives in the market for today’s buyers:

• Home supplies are up, which creates competition among sellers
• Builder confidence is down, which leads to “free” upgrades and incentives
• Mortgage rates are low, which increases cash flow and disposable income

All things equal, the current home buying conditions haven’t been this favorable in years.

The falling figures in June’s Pending Home Sales Index hint that home sales will be down through the rest of the summer and into early-Fall. However, mortgage rates may not and higher mortgage rates can do more to change a monthly payment that a small reduction in home price.

If you’re planning to buy a home later this year, consider moving up your time frame. 

It’s an excellent time to be a buyer.

The fiscal responsibility of a homeowner — in Ponte Vedra and everywhere else — extends beyond the mortgage’s basic principal and interest repayments. Homeowners are also responsible for the real estate taxes on the home and its insurance premiums, too.

Failure to pay taxes can lead to foreclosure, and failure to insure is breach of your mortgage contract.

As a homeowner, you have a choice about how you manage your real estate tax and insurance bills.  You can choose to pay them from your own bank account when the bills come due, or you can choose to pay 1/12 of the annual bill to your mortgage servicer each month, and then let your servicer pay the bills on your behalf when they come due.

Not surprisingly, servicers prefer the latter method — it reduces two major lender risks:

1. That the home’s real estate taxes go delinquent and are sold to a third-party
2. That the home endures catastrophic damage during a lapse of insurance coverage

In theory, when the servicer is paying the bills, the home’s taxes are always current and the home’s insurance is always paid. This method of managing taxes and insurance is commonly called “escrowing”.

To calculate a home’s monthly escrow payment is simple. Just take the sum of the annual real estate tax bills and insurance bill, then divide it by 12 months in the year.

As a example, a $4,000 annual tax bill with a $800 insurance policy = $4,800 annually = $400 paid into escrow monthly. These monies are collected as part of the regular mortgage payment along with the mortgage’s scheduled principal + interest payment.

Homeowners choosing to escrow tend to get the lowest rate, lowest fee loans. This is because lenders often charge a premium to “waive escrow” (i.e. pay their own taxes and insurance). Escrow waiver fees vary between banks, but can range up to half-percent of the amount borrowed. The larger the loan, the stiffer the penalty in dollar terms. 

Choosing to waive escrow can also raise your mortgage rate by up to 0.250 percent.

If you’re unsure whether escrowing is right for you, talk to your loan officer and/or financial planner. There’s good reason to go either route depending on your profile.

Mortgage markets improved last week, pushing mortgage rates lower for the 6th time in seven weeks. 

Since April, rates in Florida have been on a downward path, spurring refinances in most markets and sparking the start of a Refi Boom.

Last week, 3 key stories played a role in falling rates:

1. Demand was strong for U.S. government debt
2. Emerging concerns of a Japan-style deflation in the U.S.
3. Personal Spending since late-2007 was shown to be less than previously thought

Of the three, it’s the measured drop in Personal Spending for which rate shoppers and home buyers in Ponte Vedra should watch. Drops in spending slow down the economy which, in turn, tends to pull mortgage rates lower.

Long-term, deflation could be a drag on rates, too. For now, though, it’s just a conversation among academics and economists.

This week, mortgage rates could move up or down — a lot hinges on the results on July’s Non-Farm Payrolls report.

More commonly called “the jobs report”, Non-Farm Payrolls hits the wires Friday at 8:30 AM ET. Markets are expecting a 75,000 net loss of jobs last month. If the actual number is higher, mortgage rates should rise. If the actual number is lower, mortgage rates should fall.

With the jobs numbers not due until Friday morning, expect choppy trading through Thursday’s market close. There’s a handful of economic data set for release including Personal Consumption Expenditures (Tuesday), Pending Home Sales (Tuesday) and Jobless Claims (Thursday). Each has the potential to move mortgage rates.

The Refi Boom is ongoing but when it ends, it will end in a hurry. If you’ve been thinking about a refinance, contact your loan officer about your options sooner rather than later.

No doubt you’ve heard that mortgage rates are low. They’re lower than they’ve ever been in history.  The news is everywhere.

Just check out some of these headlines from the last 24 hours:

• Mortgage rates set new lows for the 6th straight week (Reuters)
• Mortgage rates fall again; 30-year fixed at 4.54% (Wall Street Journal)
• Mortgage rates hit another low : 4.54% (NPR)

Fixed mortgage rates are now down more than 1/2 percent from the start of the year, and 3/4 percent from just 1 year ago. The drop has dramatically improved home affordability for home buyers in Ponte Vedra while creating refinance opportunities for existing homeowners.

From a payment perspective, a conforming, 30-year fixed rate mortgage is now cheaper by $41.94 per month per $100,000 borrowed versus July 2009.

A homeowner with a $300,000 mortgage, therefore, is saving $45,295.20 over 30 years.

Low mortgage rates rarely last long and rates appear to have troughed. After a big downhill between April and July, they’re now flat. This could mean rates have finished falling, or that they’re gearing up for another drop lower. Either way, if you haven’t talked to your real estate agent about home affordability, or your loan officer about refinancing, it may be time to make that call.

If today’s market marks the end of low rates, rates are expected to rise quickly.

For the second consecutive month, U.S. consumer confidence is plunging. July’s official reading is its lowest since July of last year and the figures run in stark contrast to just two months ago, when the index touched a multi-year high.

According to The Conference Board, July’s figures are reflective of a more pessimistic consumer; one concerned about “business conditions and the labor market”.

Falling confidence numbers are presumed to be poor for the economy. For homeowner and home buyers in Jacksonville , however, they can create opportunity.  Low confidence can influence the mortgage market in a positive manner, driving mortgage rates down.

Mortgage rates are already at their lowest levels of all-time.

The link between consumer confidence and everyday mortgage rates roots in consumer spending.

Consumer spending accounts for close to 70% of the overall U.S. economy so, the thought goes that, a less confident consumer is less likely to spend money, thereby retarding economic growth. This harms the stock markets and drives cash to bonds, including mortgage-backed bonds.

More bond demand leads bond prices to rise which, in turn, pushes mortgage rates lower.

The other side of lagging confidence is that Americans may be less likely to take new financial risks when they’re feeling unsure, including buying a new home. This can then drag on the housing market, negatively impacting home prices across Florida.

Falling home values can help buyers, harm sellers, and stymie would-be refinancers.

It’s tough to predict how consumer confidence data will work its way through the economy, but in the near-term, it appears to be helping mortgage rates stay low. If you’re floating a mortgage rate with your lender, or contemplating a refinance, the time may be right to lock in a rate.

Low rates can’t last forever.

Standard & Poors released its Case-Shiller Index Tuesday. On a seasonally-adjusted basis, between April and May 2010, home prices rose in 19 of Case-Shiller’s 20 tracked markets.  It’s the second straight month of strong Case-Shiller findings.

Also, May’s numbers are a mirror-image of February’s. In February, 19 of 20 markets lost value.

In its press release, the Case-Shiller staff resisted calling May’s data proof of a housing recovery, noting that home values remain flat as compared to October of last year. However, there are some noteworthy numbers in the Case-Shiller report.

1. 13 of the 20 tracked cities are showing home price improvement year-over-year
2. Foreclosure posterchlld San Diego has now shown 13 straight months of improvement
3. San Diego, San Francisco and Minneapolis are showing double-digit annual growth

These are all good signs for the housing market, but the Case-Shiller Index is not without its flaws. Most notably, the data is limited to just 20 cities nationwide — and they’re not even the 20 largest ones. 

Cities like Houston, Philadelphia, and San Jose are excluded from Case-Shiller, while cities like Tampa (#54) are not.

Another Case-Shiller flaw is that it reports on a 2-month delay.

Therefore, today is several days from the start of August but we’re now reflecting on data from May. Given the speed at which the Ponte Vedra real estate market can change, May’s data is almost ancient.  Today’s values may be higher or lower than what Case-Shiller reports.

For home buyers, reports like the Case-Shiller Index may not be useful in making a “Buy or Not Buy” decision, but can aid in watching longer-term trends in housing.  For real-time data, talk to a real estate agent with access to local figures instead.