South Orange County Blog from Bob Phillips

Existing Home Supply Falls By Nearly A Year

Posted in home affordability, Real estate by southorangecounty on September 25, 2009

Existing Home Supply August 2008-August 2009As reported by the National Association of REALTORS©, the number of Existing Home Sales dipped last month, ending the metric’s 5-month winning streak.

Newspaper headlines today are overwhelmingly negative on housing. You’d almost believe this year’s housing recovery had ended. 

That’s hardly the case.

See, the other side of the Existing Home Sales story is that — while the number of units sold did fall by 3 percent — the months of existing supply fell by nearly a year.

To home buyers and home sellers, this is huge.  Home prices are based on supply and demand and with supplies plummeting, it means that home prices are poised to rise.

Indeed, dwindling inventory isn’t “news” to today’s buyers.  Multiple offer situations have been common since the start of the summer and, should supplies fall further, they may soon be the home-buying rule rather than the exception.

Since peaking in November 2008, existing home supplies are down 23%.

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A Simple Explanation Of The Federal Reserve Statement (September 23, 2009 Edition)

Posted in home affordability, Real estate by southorangecounty on September 23, 2009

FOMC Announcement September 23 2009The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is “picking up following its severe downturn” and that financial markets have “improved further”.

It’s the second consecutive post-FOMC statement in which the Fed appears somewhat optimistic — a signal that the recession will end soon, or has already ended.

That said, the economy still has some soft spots and the Fed made a point to single them out.  Each poses a distinct threat to economic recovery.

  1. Ongoing job losses
  2. Sluggish income growth
  3. Tight credit conditions

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.

However, the FOMC changed its timeframe on the mortgage-backed bond buys, extending its deadline to March 2010.  This move should help the Fed keep mortgage rates from rising too high as the economic expansion takes hold.

Market reaction to the Fed’s press release is positive.  After an early day sell-off that drove rates higher by about a quarter-percent, most of the pressure is easing.  Pricing is worse on the day overall, but well off its lows.

The FOMC’s next scheduled meeting is November 3-4, 2009.

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Home Prices Rise Again In July

Posted in home affordability, Real estate by southorangecounty on September 23, 2009

Home Price Index from peak of housing in April 2007 to July 2009As reported by the government, home prices are rising nationwide, up 0.3 percent in July.

Furthermore, versus November 2008, the Home Price Index has clawed back to unchanged.

The housing market appears to be holding its own.

However, we have to be careful about putting our full faith in the Federal Housing Finance Agency’s data.  It’s somewhat flawed.

  1. The Home Price Index is a national statistic and all real estate is local
  2. The Home Price Index’s methodology specifically excludes key housing demographics

As an obvious example, HPI only accounts for homes with Fannie Mae- or Freddie Mac-backed mortgage. Lately, the percentage of homes meeting that description is shrinking

As FHA financing rises in popularity, Fannie and Freddie back far fewer loans than in the past.  Furthermore, the HPI sample set also excludes newly-built homes and multi-unit properties.

Because of these exclusions, some analysts call the HPI incomplete.  The same could be said of all home price metrics, however — including the venerable Case-Shiller Index.

Therefore, what should be of interest to today’s buyers and sellers is that all of “popular” home valuation models seem to be telling the same story — home prices have stopped falling and look like they’re beginning to rebound.

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

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The Housing Market Index Reaches A 16-Month High

Posted in home affordability, mortgage rates, Real estate by southorangecounty on September 22, 2009

NAHB Housing Market Index September 2009According to the country’s home builders, the housing market is looking good.

Each month, the National Association of Home Builders releases its Housing Market Index report, a survey geared at taking “the pulse of the single-family housing market”.

Respondents report on three facets of their business, each series weighted and averaged:

  1. How are market conditions today?
  2. How do market conditions look 6 months from now?
  3. How is the traffic of prospective buyers of new homes?

For the 3rd straight month, the Housing Market Index improved.  It’s now at its highest level since May 2008.

The housing market has shown signs of life since March.  Both Existing Home Sales and New Homes Sales have soared and home values are up in a lot of towns.  Builders showing confidence is another positive signal.

Fed Chairman Ben Bernanke said that the recession is “very likely over” and strong housing data corroborates that statement. 

As the economy strengthens and housing does, too, home sellers will start to regain the upper-hand in contract negotiations.  If you’re an active home buyer, therefore, and looking for “a deal”, be aware that time is close to running out.

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Should You Lock Your Mortgage Rate In Advance Of Tomorrow’s Federal Reserve Announcement?

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on September 22, 2009

The Fed Funds RateThe Federal Open Market Committee starts a 2-day meeting today in Washington. 

The scheduled get-together ends at 2:15 PM ET Wednesday after which the FOMC will issue a press release to the markets.

Consider locking your mortgage in advance of the press release. 

The FOMC meets 8 times annually and its adjournments are among the biggest market-movers of the year. 

The Fed’s post-meeting press release is a direct look into the mind of the Federal Reserve and Wall Street is looking for clues anywhere it can find them.

After its August 2009 meeting, the FOMC said in its press release:

  1. Financial markets have improved, relative
  2. Household spending remains constrained
  3. Although weak, the economy is “leveling off”

Since then, however, credit risks have lessened on Wall Street, consumer spending have shown signs of life and Fed Chairman Ben Bernanke said the recession is “very likely over”.

This is why tomorrow’s FOMC press release is so important.  Markets don’t expect the Fed to raise or lower the Fed Funds Rate, but they do expect the Fed to shed light on its next series of moves.

If the Fed alludes to inflation and stronger growth ahead, mortgage rates should rise. By contrast, reference to slower growth ahead should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it’s been in history.  However, it’s what the Fed says Wednesday that will matter more than what the its does.

If you’re floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.

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Ben Bernanke Left Clues About The Future Of Mortgage Rates

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on September 21, 2009

Retail Sales August 2009On the 1-year anniversary of the Lehman Brothers collapse, Fed Chairman Ben Bernanke said last Tuesday that the “recession is very likely over at this point”.  

His comments were supported by a Retail Sales report for August that was much better-than-expected.

Equities improved on the day, mortgage markets worsened, and home affordability suffered. 

The days of ultra-low mortgage rates may be coming to an end.

Since last September, mortgage bonds markets have been in Rally Mode.  As the Financial Crisis of 2008 worsened, investors fled the relatively risky world of stocks and moved dollars into safer investments like cash and bonds — including the mortgage-backed kind.

Risk aversion is common when market uncertainty exists but last year’s aversion was so strong that, by late-November, it had forced mortgage rates down to an all-time low. 

Since November, however, rates have been on the rise.  Stronger economic data and a general feeling of optimism have helped stock markets recover and some of those gains are coming at the expense of low mortgage rates.

Therefore, if you’re wondering what mortgage rates might do going forward, listen to the words of the Federal Reserve Chairman. If he sees economic recovery ahead, it’s probably going to happen.

It should spell higher mortgage rates into 2010.

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Using 401(k) Funds For A Downpayment? First, Consider The Tax Implications.

Posted in Down payment assistance, home affordability, mortgage rates, Real estate, Refinances, taxes by southorangecounty on September 15, 2009

401(k) withdrawals have pros and consAs downpayment requirements increase, anecdotally, home buyers are tapping 401(k) plans for extra cash.

Classified as a “hardship withdrawal”, loans against your retirement funds can be cheap and simple.

  1. There’s no credit check or approval process
  2. There’s only a small set of paperwork
  3. Money can be available in as little as a day

But just because you can get access to your retirement money doesn’t mean that you should.  401(k) withdrawals should only be made after careful consideration. 

There are some serious negatives, specifically with respect to taxation. 

If you open a 401(k) loan and don’t repay according to the loan terms, the withdrawal ends up getting taxed as income, plus a 10 percent penalty for people under 59 1/2

That’s a stiff penalty.

But, even if you do repay the loan on time, you’re still getting leaving yourself subject to double-taxation. 

  • Taxation #1 occurs when the loan is repaid using post-tax dollars
  • Taxation #2 occurs upon final withdrawal at retirement

Furthermore, when you borrow against a 401(k), you assume the opportunity costs of having that money out of the market.  Since March, the Dow Jones Industrial Average is up 44 percent.  If your 401(k) was empty, you’d have missed those gains forever.

Taking a loan against a 401(k) isn’t necessarily a bad idea, there just may be better choices. If you’re planning to withdraw from your 401(k) to make a downpayment on a home, talk with a qualified financial professional first.

You can never have too much good information.

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Why An 800 Credit Score Doesn’t Really Matter

Posted in home affordability, Household budgeting, mortgage rates, Real estate, Refinances by southorangecounty on September 10, 2009

The makeup of a credit scoreSince 2007, mortgage lenders have clamped down in many areas of underwriting, but none more so than in the area of credit scoring.

Minimum FICO levels are up 120 points or more and conforming mortgage lenders now levy large fees on borrowers whose scores are below 740.

Keeping your credit scores high is a worthwhile goal, but it’s not always easy to do — especially when you don’t know the ins-and-out of how the credit scoring system works.

The Wall Street Journal wrote a terrific piece on credit scoring this week. It’s full of helpful, relevant tips for home buyers, homeowners, and everyone else.

Aside from covering the five basic components of a credit score — shown at right — the piece provides insightfukl advice on credit-related topics including:

  • The difference between a “hard inquiry” and a “soft inquiry”
  • Why paying for your credit report is a foolish use of funds
  • Why it doesn’t matter if you have an 800 FICO

The article also talks about the optimal balance a person should carry on their credit cards to get the biggest FICO boost.

Credit scores determine your mortgage rate.  Therefore, do what you can to keep your scores high. Follow the tips in the Wall Street Journal article and lean on public resources like

Having good credit can be a real money-saver.  Month after month after month.

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Why The Day Before Labor Day Weekend Is Tough On Home Affordability

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on September 4, 2009

Shopping for a mortgage can be challenging near Labor DayVolume figures to be light on Wall Street today as traders get a head start on Labor Day weekend.  It could make shopping for a mortgage a bona fide challenge.

Expect rate volatility this morning and afternoon and, therefore, by extension, expect wild swings in the Home Affordability Index.

As mortgage rates rise and fall, monthly mortgage payments do, too.

The relationship between “vacation days” and mortgage rate volatility stems from 2 facts — (1) Conforming mortgage rates are based on the price of mortgage-backed bonds, and (2) mortgage-backed bonds trade just like stocks.  You can’t make a deal without matching a buyer and a seller at a specific price.

With so many traders on vacation today, therefore, there are fewer opportunities to match buyers and sellers.  As a result, expect mortgage bond prices to rise and fall with more velocity than on a “normal” day — especially because the August jobs report was just released.

So far this morning, mortgage rates have been jumpy and are higher versus Thursday’s close.

That said, mortgage pricing is fluid, changing every minute of every day.  Today, expect those changes to be exaggerated.  If you have a chance to lock a favorable rate, consider taking it because, before long, the rate could be gone.

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How To Increase Your Household Cashflow By $500 Monthly

Posted in Household budgeting, Real estate by southorangecounty on September 3, 2009

There are two ways to boost your personal cash flow — increase your income or reduce your spending. The former can be a challenge but the latter doesn’t have to be. 

The headline of the below video — “Cut Your Spending By $500 Per Month” — is somewhat sensational but the advice given during the video is spot-on.  

From NBC’s The Today Show, the 5-minute piece offers a half-dozen ways to reduce your cash outflows each month, including:

  • How to negotiate a lower credit card interest rate
  • Why it’s important to go grocery shopping with “a list”
  • How to “time” certain purchases like tires, linens, and clothing

It also covers saving money on a family pet.

It’s often easier to save money than to make money. This video shows how easy it can be.

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