Mortgage Market Update

After a down month in May, the sales of newly-built homes appears back on track.

As published by the Census Bureau, June’s New Home Sales report showed:

1. A 24 percent sales volume increase from the month prior
2. A 2-month drop in the supply of newly-built home

There are now just 210,000 new homes for sale nationwide.

June’s data is a major improvement over May, but it’s possible that the true “new home market” may be softer than the statistics suggest.  This is for several reasons.

First, we’re comparing June’s sales data to the worst month in New Home Sales history.

In May, sales of new homes totaled just 267,000 units nationwide. That’s one-quarter fewer sales than in the previous worst month in New Home Sales history. May’s sales levels were awful by any measure but June’s improvement to 330,000 units remains second-worst sales levels ever posted.

Second, although much improved, June’s new home supply of 7.6 months is elevated versus the historical norm near 6.0 months.  The last year has averaged 7.7 months.

For buyers of new homes in Ponte Vedra , this combination of low sales volume and higher-than-normal inventory may be a positive.  It’s the main reason why homebuilder confidence is reeling and the downturn has opened some doors for big discounts and deals. Free upgrades and closing cost credits can make a well-priced home even more attractive.

Plus, with mortgage rates at all-time lows and expected to rise, home affordability is may never be better.

Mortgage markets worsened last week for the first time in 6 weeks last week. Investors were pleased with corporate earnings reports and the European bank stress tests results.  Stocks gained on the news, and bonds lost.

Mortgage rates rose last week, but only slightly. Rate are still hovering near their lowest levels of all-time.

Of the bigger stories last week was Existing Home Sales. As reported by the National Association of Realtors®, sales volume was down in June and home supplies were up. But figures were a bit better than expected, giving some hope for housing.

Notably, the number of move-up buyers outnumbers first-timers and the national median home price rose, suggesting that mid-to-upper home prices are getting some support.

This week, the market gets additional two pieces of housing data to add to the mix:

1. New Homes Sales (Monday)
2. Case-Shiller Index (Tuesday)

Both will have an impact on mortgage rates. In general, better-than-expected data should cause rates to rise in Florida ; worse-than-expected data should cause rates to fall.

Also this week, there’s two consumer confidence reports, the Fed’s Beige Book, and late-in-the-week inflationary data.  Mortgage markets should remain volatile with so much news headed down the pipe.

It’s too soon to declare the current 3-month rally over, but it’s been 3 weeks since rates dipped. This can be a signal that mortgage rates have finally bottomed and that it’s time to lock your rate.

If you’re floating a mortgage rate, or thinking about a refinance, it’s time to get locked in. Rates may drop this week, but then again, maybe they won’t.  There’s little sense gambling on a bet as big as a mortgage.

Consistent with most post-home buyer tax credit housing news, the National Association of Realtors® says Existing Home Sales eased lower last month.

An “existing home” is a home that cannot be considered new construction.

The 5 percent drop in sales from May to June was expected, but a closer look at the month’s data reveals some interesting trends.

First, repeat buyers accounted for 44 percent of home resales in June, up from 40 percent in May. That’s a healthy increase for just 4 weeks’ time and the tax credit is a likely catalyst. First-timer buyers bought starter homes owned by former first-timers, who were then free to “move up” to larger, more expensive property.

Housing markets can be trickle-up and, not coincidentally, the jumbo/luxury housing market is now in the midst of rebound.

Second, June’s “distressed sales” accounted for 32 percent of all home resales, up from 31 percent in May.

A figure like this hints at the large role foreclosures continue to play in a Ponte Vedra home buyer’s home search strategy.  And why not? The National Association of Realtors® suggests that distressed homes are sold at a 15 percent discount.

Lastly, take note that home inventories are rising. June’s 8.9 months of supply is the highest in 10 months. Excess supply leads home prices lower, all things equal.

Overall, the Existing Home Sales data from June is a mixed bag. There’s support for the middle- and upper-price tiers, but a growing overhang of supply. The market looks favorable for buyers given low mortgage rates and strong negotiation leverage.

The New York Times ran an important story this week concerning pregnancy and mortgage approvals. Titled “Need a Mortgage? Don’t Get Pregnant“, the article discussed the difficulties that expecting and recently-expanded families are having with their mortgage financing.

NBC’s The Today Show picked up the story as well, as shown in the 3-minute clip above.

The crux of the issue is that maternity/paternity leave often leads to a change in household income and mortgage lenders will no longer assume one or both parents will go back to work full-time.  The loss of income can raise a household’s debt-to-income ratio to unlendable levels.

Now, your loan officer cannot ask you about a pregnancy; such questions would be in violation of Equal Credit Opportunity Act. But he can ask if whether you expect your future employment and income situation to change. This would be a perfect time to broach the topic. And you should. If you’re found to have withheld employment and income information from your lender at a later date, it could result in an immediate loan denial plus a loss of earnest monies paid.

Across both pieces, though, the prevailing message is this: Families concurrently planning to (1) have a baby and (2) buy a home should be up-front and forthcoming with their loan officers. Financing is often still available for families expecting an addition — there’s just some extra paperwork though which to work.

Be prepared for that paperwork and you’re more likely to get your loan.

Single-family Housing Starts eased lower last month, falling by 0.7 percent from May, or 3,000 units nationwide.

A “housing start” is a home on which construction has started.

June’s Housing Starts data is somewhat soft and may partially explain why home builder confidence dropped to its lowest level since April 2009, but for buyers and sellers in Jacksonville , the Housing Starts report is not nearly as bad as headlines say.

This is because when the press reports on Housing Starts, it doesn’t single out single-family homes. The press lumps every type of home into a single, giant reading. As a result, news outlets are reporting Housing Starts down 5 percent — a somewhat misleading figure.

The 5 percent figure is actually a combination of 3 separate housing types:

1. Single-Family Housing Starts
2. Multi-Unit Housing Starts (2-4 Units)
3. Apartment Building Housing Starts (5 or more units)

But, single-family homes are what most Americans purchase. This is why the single-family starts data is more relevant than the combined figure commonly reported by the press. 2-4 units and apartment buildings are a different realm of buyer.

That said, though, we can’t even be sure that June’s Single-Family Housing Starts report is accurate. As noted in the Department of Commerce’s press release, the data’s margin of error is 10.7 percent which means the reported results are of “no confidence”.

In other words, there is no statistical evidence to prove the actual change was different from zero.

If Housing Starts did, in fact, drop in June, it will help to reduce the housing inventory, which will provide support for local home values. For home sellers, this could be good news. Fewer homes for sale means less competition for buyers.

Builder confidence in the housing market slipped this month, according to the National Association of Homebuilders’ monthly Housing Market Index.

The Housing Market Index is actually a weighted composite of 3 separate surveys. One measures current single-family sales; one measures projected single-family sales; and one measures traffic of prospective buyers.

All three surveys were down in July:

• Single-Family Sales : From 17 (June) to 15 (July)
• Single-Family Project : From 22 (June) to 21 (July)
• Buyer Foot Traffic : From 13 (June) to 10 (July)

The HMI’s July reading of 14 puts confidence at its lowest point since April 2009.

For home buyers in Jacksonville , a drop in builder confidence could create an opportunity for negotiation.

Remember, it wasn’t too long ago that most builders were flush with home inventory, unable to find willing buyers. To help move product at that time, builders dropped prices and offered incentives including free upgrades. If confidence continues to sag going forward, home purchase deals of that nature may return — especially as the foreclosure market gets larger.

See, in the past, builders’ main competition for buyers were the existing home sellers.  Today, builders compete with the existing home sellers and the banks with REO. 

It’s a terrific time to be a home buyer, in other words — sellers are fighting for you. It’s no wonder sellers have little leverage anymore. Couple that with all-time low mortgage rates and affordability for homes is at an all-time high.

If you’re planning to buy a home later this year, you may want to consider moving up your time frame. The market looks ripe for good deals this summer.

Mortgage markets improved for the 5th straight week last week as consumer confidence waned and inflation data tamed. Investors ignored the news that 19 of 23 reporting S&P 500 companies beat their respective earnings estimates and sold off on stocks.

There’s concern about a potential economic slowdown for the months ahead and it may be well-founded.

Despite an improving jobs situation and booming retail sales, households are less optimistic about the future and so is the Federal Reserve. In its post-meeting minutes released last week, the Fed revised its U.S. growth estimates downward for 2010 and 2011.

For rate shoppers in Florida , this is excellent news.

Because of the weakness, conforming mortgage rates fell again last week, extending the current rally in rates to 16 weeks. Mortgage rates are lower than at any time in measured history.

This week, data will be housing market-heavy and mortgage rates could rise or fall.

• Monday : National Association of Home Builders Index
• Tuesday : Building Permits and Housing Starts
• Thursday : Existing Home Sales

Strength in any, or all three, of these housing-related reports should push mortgage rates higher on higher hopes for the economy. Weakness, on the other hand, should have the opposite effect. 

Overall, though, mortgage markets are trending better.  Momentum is in effect and refinance activity is soaring. That said, it doesn’t mean that rates won’t rise — they could absolutely. It just takes a change in market sentiment. And that could happen quickly.

Mortgage rates are artificially right now so even the slightest jolt could cause them to spike. It would be similar to what happened in June 2009 when rates rose 1.125% in just 10 days’ time. Therefore, if you’re shopping for a mortgage and like the rate you’ve been quoted, consider locking in as soon as possible.

There’s very little room for rates to fall further but a lot of room for rates to rise. Make sure you’re on the right side of that bet.

According to Freddie Mac, mortgage rates made new all-time lows this week and the good news is that rates look poised to fall even more.

Since the Federal Reserve’s release of its June 2010 meeting minutes Wednesday, mortgage rates are dipping even more and one of the main reasons why is because of some choice Fed words.

If you’ve never seen a Fed Minutes release, it reads academic. The document is page after page of stats, facts and figures about the U.S. economy, accompanied by an in-depth recap of the intra-Fed member debates that shape the nation’s monetary policy.

At 7,333 words, the June Fed Minutes is the unabridged version of the more well-known, post-meeting press release.  The corresponding press release was just 360 words.

As it turns out, Wall Street didn’t like what it read in the minutes.  Specifically:

1. The Fed expects below normal growth through 2012
2. The Fed’s outlook for employment has dipped
3. Credit conditions are easing only slowly

Furthermore, the Fed said its action may be needed if the economy were “to worsen appreciably”.

Overall, the economic optimism the Fed displayed earlier this year appears to be waning. The economy is moving forward — just not as quickly as expected.  That should bode well for mortgage rates and home shopping in Jacksonville.

Mortgage rates were down Wednesday afternoon and Thursday and remain historically low. All it would take to reverse rates, however, is a run of positive news on jobs, growth, and consumer spending.  Therefore, if you know you need to lock a mortgage rate in the near-term, it may be a good time to make the call. 

Lock your mortgage rate and move on.

313,841 foreclosure filings were made in June, according to foreclosure-tracking firm RealtyTrac. The figure represents a 3 percent drop from May and 7 percent drop from June of last year. However, foreclosure filings remain relatively high nationwide.

June marks the 16th straight month the filings topped 300,000. 1 in every 411 U.S. homes received some form of notice last month with foreclosure density varying wildly from state-to-state.

Like everything else in real estate, it seems, foreclosures are a local phenomenon.

The states with the highest foreclosures per capita were:

• Nevada : 1 foreclosure filing per 88 homes
• Florida : 1 foreclosure filing per 171 homes
• Arizona : 1 foreclosure filing per 189 homes

The states with the lowest foreclosures per capita were:

• Vermont : 1 foreclosure filing per 26,051 homes
• West Virgina : 1 foreclosure filing per 8,058 homes
• South Dakota : 1 foreclosure filing per 6,528 homes

Overall, 40 states beat the national Foreclosure Per Capita average and 10 states fell below. The sheer volume of REO, though, is creating interesting buying opportunities for first-timer buyers, move-up buyers, and real estate investors in Jacksonville.

Homes bought from banks are usually less expensive than non-foreclosure homes. This is one of the major reasons why distressed sales account for roughly 30 percent of all home resales. Less expensive, though, doesn’t always mean “cheaper”. Foreclosed homes are often sold as-is and may be defective or otherwise uninhabitable.

Making repairs to get these homes into “living condition” can be costly.

Therefore, if you’re buying a foreclosed home, make sure you know what you’re buying before you make your bid. Have a certified professional inspect the home to check for damage, and consider enlisting the help of a real estate agent to assist with negotiations and management of the contract.

The process of buying a foreclosed home is different from buying a typical resale. Make sure you do your homework.

Conforming mortgage rates may be posting all-time lows this week, but that doesn’t mean you’ll be eligible for them. You may have already called your loan officer and found this out the hard way.

It’s because of a federally-mandated mortgage-pricing scheme known as “loan-level pricing adjustments”.

In effect since April 2009, loan-level pricing adjustments are changes to a loan’s base rate and/or fee structure based on that loan’s inherent risk to Wall Street. It’s similar to auto insurance pricing adjustment in that a sports car, all things equal, will cost more to insure than a comparably-priced minivan.

More risk, more cost.

In mortgage lending, loan risk can be loosely grouped into 5 categories. Mortgage applications in Jacksonville featuring any of the five traits are subject to price adjustments:

1. Credit Score (i.e. the borrower’s FICO is below 740)
2. Property Type (i.e. the subject property is a multi-unit home)
3. Occupancy (i.e. the subject property is an investment home)
4. Structure (i.e. there is a subordinate/junior lien on title)
5. Equity (i.e. mortgage insurance is required by the lender)

Furthermore, loan-level pricing adjustments are cumulative.

A 3-unit investment home will face larger adjustments than an owner-occupied 3-unit home, for example. It’s these adjustments that explain why you may not be eligible for the rates you see advertised online and in the newspapers — your particular loan may be subject to this risk-based pricing that raises your mortgage rate and closing costs.

The government’s loan-level pricing adjustment schedule is public information. See what your lender and how your loan quote is made at the Fannie Mae website. Or, if you find the charts confusing, just call or email your loan officer for help with interpretation.