We’re Back!
What a bad time for a website migration. Here’s what happened: The EU stumbled to the brink of disaster, then back, and then back to the brink of disaster. Ultimately it played out with the European Central Bank outsourcing the clean up to the IMF. IMF is code for “a lot of US Taxpayer money.” The next time you travel to Europe, don’t worry about the Canadian maple leaf on your backpack. You currently own 20% of Greece and there’s a good chance that you’ll have a similar relationship with Spain, Portugal and Ireland sooner or later. That’s most of what you missed in the past week.
The good news is that the site is significantly faster, is a lot easier to read on a mobile device, and we’re not quite done yet.
For our Feedburner readers, things should go back to normal today. Thanks for dealing with the mass post over the weekend.
If you’re not on our email distribution list and want to be, you can sign up here for the full feed or just today’s mortgage rates.
Mortgage Rate Predictions: Week of April 26, 2010 (We Cheated)
We cheated. Admittedly. After years of weekly mortgage rate predictions on Mondays, our track record is pretty good. This week we were blindsided and it delayed this week’s predictions.
Last week saw higher rates on FHA, conventional, and adjustable rates–everything ticked higher. Volcanic ash cleared the air and it looked, at least for a bit, like there was a resolution to the Greek “issue.” By “issue” we are referring to the fact that they completely violated the EU provisions for budget deficits and kept this well-masked…for a while. Greece is not exactly good at getting accurate tax returns from its citizens and it is even worse at relaying accurate budgets to its fellow EU members.
Monday and Tuesday of this week were too volatile. Great news for mortgage rate shoppers, awful news for all things Euro. Greece was downgraded to junk yesterday. It is difficult to run at a deficit on junk bond rates and they’re now up to 9-10% yields. Europe is pondering two options right now: Bad & Worse. At present, Worse has the edge.
In the past two days, we’ve seen massive rallies in the mortgage bond market as money surges out of Europe in search of safer investments. Add to it a pull-back in the stock market and it explains much of why mortgage rates staged a rally yesterday.
Mortgage Rate Predictions: Three Volatile Days Remain
Heading into the week, today should have been the volatile day as the Fed adjourns from one of its 8 scheduled meetings for the year. It doesn’t stop there. Tomorrow we get Initial Unemployment Claims data and then GDP and consumer confidence hits on Friday.
On their own, these items would be a full week’s worth of data. But it doesn’t end there. Greece isn’t solved and Ireland, Portugal, and Spain are all hanging on by a thread. Here’s Credit Crunch 101: When Lehman Brothers collapsed, banks became afraid of lending to each other overnight as no one knew how much of each other’s balance sheets were locked up in bad securities. When banks won’t even lend to each other overnight, they don’t lend to consumers and they don’t lend to businesses.
Well, here’s the bad news in Europe: They have more sovereign debt in their banking system than we had in subprime loans. Our credit crunch could be nothing compared to what they are facing now. We went through a painful process in 2008-2009 to unlock a frozen banking system and purge the toxic assets from the system.
Rates are pushing back to 5% on the fixed, whether it is FHA v. Conventional, the numbers are roughly similar. The 5/1 ARM is below 4%.
Rates are low. Very low. At the present, the safest move remains locking a loan. There remain marginal opportunities to see rates dip lower, but not much. If Greece & Friends gets a little worse, rates might go a little lower. If it gets better, rates skyrocket.
In volatile times, a fixed rate can be a great option. In extremely volatile times, locking that loan now can be the best option.
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Market Waits For Fed Press Release
The Federal Reserve adjourns from a scheduled, 2-day meeting today.This is one of the big 8 days scheduled every year.
Upon adjournment, Fed Chairman Ben Bernanke & Co. will release the brief press release that will hit the big question: the Fed Funds Rate (FFR) and we’re expecting no change.
The FFR is an inter-bank lending rate that is also the basis for many consumer rates based on the Prime Rate, notably credit cards.
Mortgage rates, however, should change. Possibly by a lot. The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).
The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight vrious parts of the economy, identifying strengths, weaknesses and probable threats to growth.
These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip — mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.
It’s a difficult time to be shopping mortgages. Rarely are there this money variables that are simultaneously moving. We’ve hit on the Greece & EU issue recently in this blog. It’s spurred a flight-to-quality and that has helped mortgage rates rally.
Mortgage rates may fall today, but there’s very little room for them to fall. This is, however, a lot of room for them to rise.
The Fed meeting adjourns at 1:15 Central today. Be prepared.
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New Home Sales: Strong in March, but not as strong as they would seem
The sales of newly-built homes soared in March. Even more than what was expected. But the news may not be as glowing as what the media is telling us.
Take a look at the headlines from last Friday:
- Sales of new homes rocketed up 27 percent in March (WaPo)
- New-home sales rise fastest in 47 years (CNNMoney)
- Sales of New Homes Climb by Most Since 1963 (Business Week)
None of these statements is false, per se, but each is somewhat misleading. The biggest reason why March’s New Home Sales was even able to rise 27 percent is because data from the month before it — February — was the worst in New Home Sales history.
In February, new homes sold posted its lowest level in recorded history.
A better comparison would be against March a year earlier; or October 2009, the month before the home buyer tax credit’s initial expiration date.
Against both of those time periods, March 2010 fared well.
Home buyers – first-timers and repeats alike — went under contract last month, taking advantage of the soon-to-expire federal home buyer tax credit program. The credit gives up to $8,000 for first-time buyers and up to $6,500 for repeat ones.
Buyers must be in mutual contract on or before April 30, 2010 to be eligible for the credit, and must closed on or before June 30, 2010.
The New Home Sales data included other strong housing data, too. The current supply of new homes nationwide is at a multi-year low. Along with stronger home demand, this should push home prices higher throughout the coming months.
It’s no wonder builders are bullish on the economy.
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Home Resales Boom Into The End Of The Tax Credit; Home Values Seen Rising.
As expected, Existing Home Sales jumped last month as March revealed 7% more closings versus February.
The year over year figure shows that sales volume was up over 16%.
“Existing home sale” includes those homes that have previously been inhabited. The opposite is a “new home sale” which has yet to be occupied.
The data is from the National Association of Realtors and also included some other interesting stats:
- Year-over-year sales are higher for the 9th straight month
- Real estate investors represented 19 percent of all homes purchased
- First-time home buyers account for 44 percent of all buyers
As we’ve been talking about for months, home supply is the important number. That is now down to 8 months. Yes, all the doomsday people are talking about the release of foreclosures and REO into the market, but the supply is still down by half a month versus February. In other words, yes there is more supply, but demand is currently outpacing supply.
That’s a fundamental shift. When supplies drop, prices rise. It suggests that the housing market has established enough momentum to remain strong after the end of the first time home buyer tax credit.
That said, real estate markets are local. The importance of the tax credit to your local market will largely vary by purchase price. The difference of $8,000 on a $100,000 purchase versus a $400,000 purchase is significant. As we reach the final week of the tax credit, I’d be talking to my real estate agent about the local market conditions specific to my purchase price.
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Mortgage Rate Predictions & Unlikely Allies
Mortgage rate predictions are always subject to countless variables, both foreign and domestic. Don’t leave out Mother Nature.
In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.
It’s been a multi-billion dollar hit to the global economy. That drag on commerce has spilled over to Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table.
In trading circles, it”s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets. This includes government-backed securities — mortgage-bonds among them.
Demand for bonds rise, pushing up prices and driving down rates.
Conforming and FHA mortgage rates touched a 3-week low earlier this week.
Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There’s literally thousands of influences on the U.S. mortgage market.
If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.
When that happens, mortgage rates will rise.
Therefore, use the seismic uncertainty to your advantage. Consider locking your mortgage rate sooner rather than later — while rates are still low.
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Housing Starts Data Hints That Housing Will Expand Even After The Tax Credit Expires
After a strong March showing and a surprise upward-revision for February, Housing Starts are, once again, trending better.
It’s yet another signal that the housing market nationwide is stabilized.
A Housing Start is a new home on which construction has started and, over the last 6 months, home builders are averaging one half-million starts per month.
This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago. Revisions to prior data have all been higher, too.
Even more interesting, though, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.
Housing permits are an important data point in housing because permits are precursors to actual housing starts. According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.
Therefore, because March’s housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.
This, too, reflects well on housing because the federal home buyer tax credit won’t be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even after the tax credit expires.
Non-military members must be under contract by April 30, 2010 and closed by June 30, 2010 in order to claim up to $8,000 in federal tax credits.
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Mortgage Rate Predictions: Week of April 19, 2010
We saw a second consecutive week of mortgage rate improvement last week. Also for the second week in a row, the reason for the downward trend in mortgage rates was “safe haven” buying.
As we’ve discussed before, safe haven buying is when investors sense market risk, then move money toward less risky investments. With the U.S. government backing Fannie and Freddie mortgage bonds, these investments fit the “less risky” objectives of investors.
Early in the week, we even saw nature get involved in the trading of mortgage bonds as Iceland’s volcanoes shut down air traffic in Europe. The ramifications are widespread, not just in terms of moving people, but also perishable items like produce. Bad for the economy = good for mortgage rates.
The Friday’s bombshell that sent markets staggering into the weekend as the SEC announced fraud charges against Goldman Sachs, a second wave of bond buying began as Wall Street fled the stock market.
Mortgage rates fell a second time and the improvement carried through the market’s weekly close. Conforming and FHA mortgages are at their lowest levels since March.
This Week’s Mortgage Rate Predictions
We are light on data this week and the calendar is pretty much blank until Thursday.
- Initial Jobless Claims : Important vis-a-vis broader employment figures. A strong number could push rates up.
- Existing Home Sales : Housing remains a key part of the economy. Strong sales are expected because of the tax credit.
- Producer Price Index : A “Cost of Living” index of business. A weak reading is expected because inflation is low.
Then, Friday, New Home Sales is released.
The biggest risks this week are not economic data, it is a reversal to the pattern of safe haven buying that is pushing rates lower. When that pattern ends, rates could reverse. We picked up 80 basis points last week and about 140 basis points since this rally began on April 5th.
The last few safe haven rallies that we’ve seen have reversed just as quickly as they started. If you’re considering a lock, there’s very little to lose by locking sooner rather than later.
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Fixed v ARM Mortgage Rates
The fixed v. ARM comparison hasn’t been very popular over the past few years. In looking at the most recent Freddie Mac survey of 125 banks, you can see why the comparison is coming up again.
Just twelve months ago, we were actually inverted–meaning the 5/1 ARM rate was higher than the 30 Year Fixed. Today, it’s almost a one-point spread. That’s incredible.
On a $200,000 home loan, today’s loan comparison would have a difference of $117 per month.
ARMs aren’t for everyone and should be selected based on life circumstances, not payment. For a longer term hold, the 30 Year v. 20 Year and 30 Year v. 15 Year comparisons remain popular. These scenarios warrant a 30 Year v. 5/1 ARM comparison:
- Buying a home with an intent to sell within 5 years
- Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
- Interested in low payments and comfortable with longer-term interest rate and payment uncertainty
Another popular move is refinancing an existing ARM into a new 5/1 ARM, extending the initial change date on the current note.
Adjustable rate mortgages are not inherently good or bad. They’re really good when used properly, they’re a foolish option when the product doesn’t meet your financial goals. If you’re not sure where you fit, contact us for a custom calculation.
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How To Buy Bank-Owned Homes
From our friends at RealtyTrac.com, foreclosure filings rose close to 20 percent nationwide last month versus February. In the first quarter of 2010, bank repossessions hit a new all-time record: 257,000 homes.
This is not a news flash: The foreclosures remain concentrated in a very small amount of states. It’s been like this for this entire downtrend and it skews the stats. California, Florida, Arizona, and Georgia represent 23% of the US population. They represent over 50% of the bank repossessions.
To understand what foreclosures are, you need to understand what they aren’t.
They are not an opportunity to go find top quality homes at 50% discounts with very simple, streamlined offer and closing processes. That’s late night TV type of stuff. Not reality. These are not the same types of homes that you’d find from a traditional resales or new construction.
Still, distressed homes are 35% of the market right now. If you are looking for a home, you’ll run into a foreclosure or two. Here are a few quick tips:
- Buying bank-owned homes can take 120 days to close or more. If your situation is time sensitive, you are not a candidate to buy a foreclosure.
- Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held. What YOU are seeing isn’t the pick of the litter. There’s nothing wrong with that, just have realistic expectations.
- Bank-owned homes are often sold “as is.” You can buy any home “as is” if you are paying cash. If you are not, “as is” may not work for you.
Experience, not education, reigns supreme in the foreclosure business. Before seeking representation from a Realtor, I’d interview them rather thoroughly. This is not a time to use your co-worker’s cousin’s friend who is a Realtor after his/her day job. I’d ask one simple question: What is your experience in distressed properties?
If you hear more talk about “I took a class” than “closings,” that answer was about education not experience. Anyone can take the classes, that doesn’t mean that they have practiced yet. Let your co-worker’s cousin’s friend practice on someone else.
Doctors practice on rodents and small mammals before they ever touch a patient. Don’t be the guinea pig for a Realtor who is learning on the job. There are some very qualified professionals who have the experience to guide you through this process. They’ll have precise examples and will be talking about multiple closings per month.
Having a hard time finding someone? Contact us. We’re always glad to refer experienced professionals that can help.