The Mortgage Reports -- Todd Bookspan, Mortgage Blogger

Home Supply Falls To An 8-Month Low

Fri, 24 Jul 2009 08:00:00 -0700

The national home supply is falling, down to its lowest levels since December 2008.

In June, there was 9.4 months of supply, down from a year-ago level of 11.0 months. It's one more sign that the housing market may be mending itself.

Housing supply is an important metric because home values across every U.S. market are rooted in Supply and Demand. When the supply of available homes outpaces buyer demand, home values tend to fall. And, by contrast, when homes are relatively scarce, values tend to rise.

We're still a long way from historical averages, but dwindling home inventory may be one reason why the national median sale price rose by $7,000 last month.

A reduction in inventory may also explain why two other popular home value metrics -- the government's Home Price Index and the private sector's Case-Shiller Index -- are each showing signs of a rebound, too.

However, before we get too excited, it's important to remember that home sales of late have been spurred by low mortgage rates and by the First-Time Home Buyer Tax Credit. A real estate trade group says first-timers represent 29 percent of the market, for example.

But so long as rates remain low and buyer stimulus is in place, we can expect that the recent trends in real estate will continue. Inventory should continue to drop and prices should start to rise.

Therefore, if you're planning to buy a home in the next 12 months, buying sooner rather than later may be a smart way to save on your next home.

The Home Price Index Shows That Home Values Increased In May

Thu, 23 Jul 2009 08:00:00 -0700

Home values around the country appear to be leveling.

The Federal Housing Finance Agency's latest Home Price Index report shows values up by nearly 1 percent in May versus the month prior.

Since peaking in April 2007, values remain off by 11 percent nationwide.

The FHFA Home Price Index is an interesting metric. Different from the Case-Shiller Index which collects data from just 20 U.S. markets, the Home Price Index reflects every U.S. home that backs a mortgage sold to Fannie Mae and Freddie Mac.

In this sense, the FHFA Home Price Index is more "national" than the Case-Shiller Index but the HPI has its flaws, too.

The House Price Index specifically excludes from its measurements the sales price on any home purchase with any of following traits:

Is new home construction
Is a multi-unit property
Is financed by an entity other than Fannie Mae or Freddie Mac

Because of these exclusions, some analysts say the report is incomplete. The same could be said of every method of home valuation, however.

Therefore, what's most important to today's home buyers and sellers is that each of the "popular" home valuation reports shows similar patterns. Home prices appear to have stopped falling and may be even starting to recover.

It won't be for a few years that we'll be able to look back and point to the exact month that real estate bottomed. Nevertheless, considering how the data has presented as of late, it's reasonable to think that we've already hit it. Certainly, that's what the Home Price Index suggests.

For a region-by-region breakdown of the Home Price Index, visit the FHFA website.

Mortgage Rates Drop On Bernanke's "Exit Strategy" From Markets

Wed, 22 Jul 2009 08:00:00 -0700

Mortgage markets rallied Tuesday while Fed Chairman Ben Bernanke gave his semi-annual testimony to Congress.

By the time the day was over, some conforming mortgage rates were down by as much as 0.250 percent.

One of the leading causes for the market rally was Chairman Bernanke revealing an "exit strategy" from its massive market stimulus.

Until Tuesday, the Fed hadn't gone into much depth about means and methods by which it would unwind its interventions. In addition to penning a widely-read Op-Ed piece in the Wall Street Journal Tuesday, Bernanke testified to Congress that the Federal Reserve has a viable "exit strategy".

Wall Street was pleased to hear it.

The specter of long-term inflation has spooked the mortgage markets off-and-on since the start of the year. It's one of the reasons why mortgage rates have been so jumpy, and why they crossed 6 percent last month. Inflation is terrible for mortgage markets.

So, with the fear of inflation subsiding -- at least temporarily -- mortgage rates sunk Tuesday.

With any bit of luck, momentum will carry rates lower today and through the rest of the week. But, don't get greedy. Mortgage markets are notoriously fickle and one "bad" statement from the Fed Chairman could cause rates to rise right back up.

Bernanke's complete Tuesday testimony can read online at the Federal Reserve website.

Housing Starts Make Its Largest Leap Since 2004

Tue, 21 Jul 2009 08:00:00 -0700

Housing Starts soared in June, thumping analyst expectations for the second straight month.

A "housing start" is a new home on which construction has started. Last month's jump in single-family starts is the largest one-month jump since 2004.

To Wall Street, June's figures are the latest signal that the country's housing markets may be on the mend.

For home sellers, however, the news may not be so rosy. With more homes expected to come on the market, price competition among sellers could intensify and -- all things equal -- that would push sales prices lower.

So far in 2009, that hasn't happened.

As home supply has grown, it's been met by off-setting buyer demand. Spurred by low mortgage rates and an $8,000 first-time homebuyer tax credit, Americans appear to find today's home buying conditions somewhat ideal.

As a result, purchase activity has been strong and first-time home buyers now account for close to 30 percent of existing home sales.

Rising Housing Starts can be a double-edged sword. It shows strength that builders are more optimistic about the economy, but too much optimism can lead to a glut of unsold homes and that could reverse the recovery's momentum.

What's Ahead For Mortgage Rates This Week : July 20, 2009

Mon, 20 Jul 2009 08:00:00 -0700

Mortgage markets had an awful week last week as a combination of strong economic data and stand-out earnings results led investors into more risky investments.

The Dow Jones Industrial Average was up 7 percent.

Mortgage rates, unfortunately, didn't fare as well. As the first week since June in which mortgage rates rose, rates were up by a lot.

Mostly for three reasons.

The week's first big mortgage rate bump came Tuesday, right after Goldman Sachs released its blowout quarterly numbers. As one of the world's largest financial firms, Goldman's strong showing hinted that the financial crisis may finally be finished.

Next, rates were impacted by the release of the Fed Minutes from its June meeting. In the report, it was revealed that Ben Bernanke & Co raised the economic forecast for both 2009 and 2010, noting that the recession should be ending soon.

Lastly, June data showed that Retail Sales is expanding and that jobless claims are falling -- two potential positives for the U.S. economy that relies so heavily on consumer spending.

This week, without much data, the mortgage market should continue to take its cue from the stock market. If stocks improve, rates are expected to worsen. And vice versa.

The week's key events are Fed Chairman Bernanke's Tuesday testimony on Capitol Hill and Thursday's Existing Home Sales data. Mortgage rates remain volatile so if you're offered a rate that comfortably fits your household budget, consider locking in before the market can change.

The First-Time Home Buyer Tax Credit : Use It By December 1, 2009 Or Lose It

Fri, 17 Jul 2009 08:00:00 -0700

The government's First-Time Home Buyer Tax Credit expires December 1, 2009.

If you expect to use the program in conjunction with a home purchase, therefore, you may want to consider yourself officially "on the clock".

Assuming a 60-day window between contract and closing, there are now 77 days left to find a home and go under contract for it.

The First-Time Home Buyer Tax Credit refunds up to $8,000 at Tax Time for qualified home buyers. A few of the program's qualification criteria include:

Home buyer must not have owned a primary residence in the past 36 months
The home may not be purchased from a family member
The household adjusted gross income must be below $95,000 for single tax filers and $170,000 for joint tax filers

The tax credit itself is limited to $8,000 or 10% of the purchase price, whichever is less.

Remember, though: The refund is a true tax credit -- not a deduction. This means that a taxpayer owing $8,000 to the IRS and claiming the $8,000 First-Time Home Buyer Tax Credit would owe the IRS nothing on April 15, 2010.

The complete list of qualifying criteria is posted on the IRS website.

Foreclosures Still Concentrated In Just A Few States

Thu, 16 Jul 2009 07:22:03 -0700

For the fourth consecutive month, the country's foreclosure activity was dominated by a small number of states.

As reported by RealtyTrac.com, more than 50 percent of the country's foreclosure-related actions in June concentrated in just 3 states:

California
Florida
Nevada

The states rounding out the Top 10 include Arizona, Georgia, Michigan, Texas, Ohio, Illinois and Colorado.

Meanwhile, June's reported foreclosure figures are consistent with the data from earlier this year, suggesting that the foreclosure remedy plans put forth by the government and by lenders can barely keep pace with the national default rate.

Foreclosure-related actions nationwide are up 5 percent from May.

The silver lining in data this negative is that foreclosures are creating tremendous buying opportunities for the right buyers. Because foreclosed homes tend to sell at a discount versus non-foreclosed homes and because mortgage rates are low, home sales are showing strength in a multitude of markets because of ample supply at relatively cheap prices.

Distressed homes accounted for one-third of all existing home sales in May.

Search the complete June 2009 foreclosure report for yourself, including foreclosure heat maps and other trends on the RealtyTrac website.

Why Mortgage Rates Were Up For The Third Day In A Row

Wed, 15 Jul 2009 07:45:00 -0700

Mortgage markets worsened for the third straight Tuesday after the government reported June's Retail Sales report came in slightly better than expected.

Since falling to near 5.000 percent last week, 30-year fixed conforming mortgage rates have risen by almost 3/8.

It's a similar mortgage rate pattern to what we've seen over the last 10 months -- rates drift down to near their "all-time lows", and then surge higher over just a few days time.

This week's movement, in particular, is vexing home buyers and would-be refinancers.

Many people thought mortgage rates would break below the 5.000 percent threshold. The markets, however, had other ideas.

In addition to the unexpectedly strong Retail Sales data, last month's Producer Price Index reported higher than expectations, too.

A rising PPI is important to rate shoppers because the figure is akin to the Cost of Living measurement for household, but for American businesses instead. The thought goes that if business costs are rising, consumer costs will eventually rise, too, as businesses share their expenses with American households.

This is inflationary, of course, and inflation is awful for mortgage rates. It's part of the reason why mortgage rates closed higher again Tuesday.

All year long, mortgage rates have been jumpy and unpredictable. This past week has been no different and it's why you shouldn't necessarily try to time for a market bottom with mortgage rates.

If an interest rate looks good to you today and the payment is manageable, consider locking it in. There's no guarantee rates will ever fall back toward 5.

Falling Gas Prices May Be Linked To Lower Mortgage Rates

Tue, 14 Jul 2009 08:00:00 -0700

If you've been driving lately, you've noticed that the cost of a fill-up has gone down.

According to GasBuddy.com, retail gas now costs $2.52 per gallon, on average nationwide. Since peaking in mid-June, gas prices are down 6 percent.

For the economy, this is an important story.

Because Americans are spending less at the gas pump, they're left with additional dollars to spend in other ways including for everyday items like food and shelter, plus for luxury items, too.

Consumer spending accounts for a huge part of the U.S. economy and falling gas prices give economists one more reason to believe a full economic recovery may be close.

With Back to School season around the corner and the holidays looming, a mini Wealth Effect could propel the economy forward and out of recession.

Falling gas prices can be good for mortgage rates, too.

Because rising gas prices are associated with inflation and inflation is linked to rising mortgage rates, the opposite is often true, too. When inflation pressures recede, mortgage rates tend to fall. And that's what we're seeing in today's market.

As gas prices have fallen, mortgage rates have, too. As a result, home affordability is up.

(Image Courtesy: Department of Energy)

What's Ahead For Mortgage Rates This Week : July 13, 2009

Mon, 13 Jul 2009 08:00:00 -0700

Mortgage markets improved last week on fresh concerns about the U.S. economy.

With data showing neither overt strength nor weakness, and with earnings season about to start, traders got defensive with their money and parked it in bonds.

As a result, mortgage rates fell in mixed trading last week. It's the third consecutive week in which rates fell.

This week, rates should be in flux with traders watching 3 things.

The first is the aforementioned Earnings Season reports.

Big Banks JP Morgan Chase, Bank of America and Citigroup report quarterly earnings this week. If balance sheets look healthy and markets are encouraged by the results, it could spark a stock market surge, similar to last quarter. This would be bad for mortgage rates.

The second item markets will be watching is economic data. In addition to inflation-related data like the Consumer Price Index, markets are watching for Tuesday's Retail Sales report.

Retail sales are a key economic indicator because consumer spending accounts for two-thirds of the economy. If the data is weak, mortgage rates should benefit.

And, lastly, markets are awaiting the Wednesday release of last month's Federal Open Market Committee meeting minutes.

The minutes will give a behind-the-scenes look at the conversation and debate surrounding the Fed's decision to hold the Fed Funds Rate near 0.000 percent and not purchase additional treasury securities on the open market.

Mortgage rates remain volatile. Therefore, if you're actively shopping for a mortgage rate, consider that mortgage rates have been falling for the past 3 weeks and may be due for a reversal. All it would take for that to happen is for this week's economic data to show just a little bit of strength.

We could expect traders to pile back into stocks and mortgage rates to suffer.

5 Purchases To Make In A Down Economy

Thu, 09 Jul 2009 08:00:00 -0700

Down economies reduce consumer spending, creating a bind for retailers. As excess inventory collects dust, companies have little choice but to drop prices in hopes of selling more product.

For the bargain shopper with extra cash right now, there are some terrific deals to be had out there. This 4-minute piece from NBC's The Today Show highlights a few of them.

Wines over $25 per bottle reduced up to 50%
High-quality diamonds reduced up to 30%
Summer rental homes reduced up to 50%

Furniture is another discounted item.

Now, these aren't everyday-type purchases, but when the economy turns around for good, the bargain-priced items highlighted in the video are expected to return to their former price levels.

If you have the means, therefore, consider taking advantage while costs are down.

Change Your Closing Date To Get A Lower Mortgage Rate

Fri, 10 Jul 2009 08:00:00 -0700

Sometimes, saving money on your mortgage is as simple as picking a better closing date.

It's all about Rate Lock Commitments.

A Rate Lock Commitment is a bank's promise to honor a specific mortgage rate for a specific period of time. They are a lender's prediction of what mortgage markets will look like at some point in the future.

The future is murky, of course, so it follows that the longer the rate lock, the higher the bank's corresponding interest rate.

Banks have to compensate for "time risk".

Rate locks typically come in 15-day increments with the 30-day lock serving as the basis for all other pricing:

15-day rate lock : 1/8 percent lower than the 30-day rate lock
30-day rate lock : The basis for all other pricing
45-day rate lock : 1/8 percent higher than the 30-day rate lock
60-day rate lock : 1/4 percent higher than the 30-day rate lock

These aren't exact figures, of course. Spreads between rates can (and do) vary from lender-to-lender. On average, though, they're fairly close.

This is why choosing a closing date is so important to your mortgage rate. A 45-day closing may reduce your rate 0.125% versus a 46-day one.

Assuming a $250,000 home loan near today's rates, that's an annual difference of $236.

So, when negotiating a contract on a home, keep in mind how rate locks work to make sure you get the best rate possible. The shorter the length of your rate lock commitment, the more money you might save long-term.

Fannie Mae Restricts 2-Unit Borrowing

Wed, 08 Jul 2009 08:00:00 -0700

For the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners.

This time, the hardest hit demographic is owners of 2-unit homes.

In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.

Primary Residence

Purchase: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
Rate-and-Term Refinance: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 680.

Investment Property

Purchase: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
Rate-and-Term Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimums reset to 680.

With Fannie Mae's new loan-to-value limits falling by as much as 15 percent, it's a certainty that fewer 2-unit homeowners will be approved in the mortgage process. This could slow both purchase and refinance activity in the coming months.

The good news, though, is that while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the "effective date".

Therefore, if you plan to buy a 2-unit home, or if you own one and know you'll need to refinance it soon, it may be a good idea to move up your timeframe.

Lenders could implement the new guidelines at any time and usually do so without warning.

How A Rising Unemployment Rate Can Help Mortgage Rates Fall

Tue, 07 Jul 2009 08:00:00 -0700

Last week's jobs report is the latest data point to drag down rates for today's home buyers and would-be refinancers.

As reported by the government, the national Unemployment Rate rose to 9.5 percent in June -- a 25-year high.

As the percentage of out-of-work Americans grows, households have less disposable income to pump back into the economy.

And so, because consumer spending accounts for two-third of the economy, the growing ranks of the unemployed are forcing markets to change expectations about when the U.S. economy will reach its full recovery.

Inflation is the enemy of mortgage rates. The perceived absence of inflation, therefore, can be its friend.

With fewer working Americans, we can expect slower economic growth plus a smaller probability for inflation over the medium-term. This is why mortgage rates are lower of late, off by as much as a half-percent from the peak.

What's Ahead For Mortgage Rates This Week : July 6, 2009

Mon, 06 Jul 2009 08:00:00 -0700

Mortgage markets were relatively calm throughout last week's holiday-shortened trading sessions.

After trading within a tight range between Monday and Wednesday, a weak jobs report helped edge rates lower into the weekend.

For the second week in a row, mortgage rates ended the week lower than where they started -- if only slightly.

Meanwhile, if it's the expectation of runaway economic growth that fueled the early-June, mortgage rate run-up past 6 percent, it's the tempering of those expectations that helped rates retreat by a 1/2 percent or more since.

While the housing sector continues to post strong numbers, employment is showing that it may not rebound as quickly as previously thought and U.S. consumer confidence remains shaken.

The Unemployment Rate rose to its highest levels in 25 years last month and key confidence levels fell.

With negative job growth and falling consumer optimism, it only makes sense that mortgage rates would fall -- fewer people are working and the public feels uneasy about spending its money.

This week -- without much new data due -- market momentum could push rates even lower. In general, perceived weakness in the economy will be good for mortgage rates and strength will be bad.

However, there's a wildcard.

This week, some of the world's largest nations are expected to call on a replacement for the U.S. dollar as a global currency reserve. Depending on how serious the discussion grows, the value of the U.S. dollar could be negatively impacted and that would spell bad news for rate shoppers.

A weakening U.S. dollar is linked to higher mortgage rates.

Mortgage rates remain favorable and unpredictable. If today's rates make sense for your household budget, consider locking in. Rates won't likely end the week at the same levels at which they started.

For The 4th Straight Month, There's An Increase In The Number Of Homes Under Contract

Thu, 02 Jul 2009 08:00:00 -0700

The number of homes under contract to sell increased in May.

It's the fourth straight month in which sales volume increased, corroborating the growing notion that housing is on the mend in most U.S. markets.

Consider these other housing-related stories from the past month:

Existing Home Sales are rising
New home supplies are falling
The Case-Shiller Index is turning positive-like

Put it all together and it looks like the housing market is about to reach its bottom (if it hasn't already).

But just because homes are going under contract to sell doesn't mean that they actually will sell. A "deal" can fall apart for all sorts of reasons including failed home inspections, buyer-seller disputes, and mortgage-related problems.

In general, though, as the number of pending contracts increase, we find that Existing Home Sales rise, too, some 45-60 days into the future. And so long as buyers' demand for homes remains strong, we would expect that home prices edge higher.

It's too soon to say that housing has turned the corner for certain, but there's an awful lot of data lately that suggests that it has.

Home Prices Show Improvement In 19 of the 20 Case-Shiller Markets

Wed, 01 Jul 2009 08:00:00 -0700

Tuesday -- for the first time in a long while -- members of the press met the monthly Case-Shiller Index data with enthusiasm. And why shouldn't they? 19 of the 20 measured markets showed a slowing pace of home price decline in April.

Here are some of the headlines about the story:

Case-Shiller Home Prices Decline Only 18% (Business Week)
Case-Shiller Less Bad (Seeking Alpha)
Home Prices In 20 Cities Drop Less Than Expected (Bloomberg)

Now, the headlines feel negative, but they're actually highlighting some key strengths in April's figures. For example, nearly half of the Case-Shiller markets posted gains in April and all but one showed month-over-month improvement.

It's a step in the right direction but doesn't mean that housing has turned around for good.

We have to be careful about how we interpret the Case-Shiller Index because it's an imperfect housing gauge. The most obvious Case-Shiller flaw is that it only measures home values in 20 cities nationwide and they're not even the 20 biggest cities.

Houston, Philadelphia, San Antonio and San Jose are excluded from the report and each ranks among the country's 10 most populous areas.

That said, the report is still important because the Case-Shiller Index identifies broader housing trends and that helps to shape economic policy.

Not only versus last month but also versus last year, the pace at which home values are falling appears to be getting slower. This is the third straight month Case-Shiller has reported as such.

Now, three months makes a trend, but the data has to stay strong through the summer months to mark a bona fide turnaround. If the Case-Shiller Index shows strength for May and June, it could be the signal for which the markets have been waiting.

With The Year Half-Over, How Accurately Did Economists Predict 2009

Tue, 30 Jun 2009 08:41:41 -0700

At the start of the year, the "experts" made a lot of predictions about the U.S. economy and what to expect in 2009.

And nobody predicted just how big the government's stimulus package would be.

Now, on June 30, with the year officially half-over, it's as good a time as any to remember that people are much better at interpreting the past than predicting the future. Economists can make educated guesses about the future, but they're guesses nonetheless.

It's like watching the Weather Channel. A meterologist can look at the data and say it's going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood. These are not the types of predictions we get from the pundits.

There's another 6 months until 2010 and there's no reason to expect the current trends to change.

The world is unpredictable and so is the U.S. economy. Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman's been wrong before.

What's Ahead For Mortgage Rates This Week : June 29, 2009

Mon, 29 Jun 2009 08:00:00 -0700

Mortgage markets improved last week on the heels of benign economic data and a non-inspired press release from the Federal Reserve.

Aside from trader momentum, 3 market-moving events helped set the pace last week:

Housing data hinted at strength
Jobless data showed softness
The Fed said growth appears on-track

The combination of the three created volatility that -- for just the second time in the last 8 weeks -- worked in favor of rate shoppers.

Mortgage rates changed a lot last week, but they trended lower overall.

Already, however, markets are looking ahead to this week's holiday-shortened trading sessions. There is a ton of data to be released and as the week progresses, the ever-falling market volume could create some wide swings in mortgage rates.

The mystery is whether rates will be getting better or worse.

On Tuesday, markets will get Consumer Confidence and Case-Shiller Index data at 9:00 AM ET. The Case-Shiller Index is a home price measurement and it always gets a lot of press. Strength in either number should lead mortgage rates higher. Weakness should help rates ease.

Then, on Wednesday, Crude Inventories should take the spotlight. Normally, we don't watch this data point too closely but with gas prices easing last week, rising oil supplies could mean even lower gas prices ahead. This is anti-inflation and a good sign for mortgage rates.

And lastly, on Thursday, the government releases June's jobs report. This report is always a market-mover -- good or bad. And with trading volume low by Thursday, mortgage rates should move more than "normal".

Be ready to lock at a moment's notice this week. Mortgage rates continue to be volatile and the holiday-shortened week won't do anything to counter that. If you're the nervous type, when you see a rate that fits your budget, consider locking it in.