South Orange County Blog from Bob Phillips

Mortgage Rates May Be Low, But They’re Tough To Pin Down — Especially This Week

Posted in mortgage rates by southorangecounty on August 31, 2010

Vacation days contribute to jumpy mortgage rates

Mortgage rates are low right now but pinning them down this week could be a challenge. As Labor Day Weekend nears and Wall Streeters take their head-start on the holiday, trading volume will fall, which will cause mortgage rates in California to get jumpy.

As mortgage rates change, so does the long-term cost of owning a home. Every 1/8 percent adjustment changes a household budget.

Meanwhile, the relationship between “vacation days” and mortgage rate volatility is an interesting one; based more in scarcity than market fundamentals.

Rates tend to get volatile near holidays because of two inter-related facts:

  1. Conforming mortgage rates are based on the price of mortgage-backed bonds
  2. Mortgage-backed bonds can’t trade without a buyer and a seller at a specific price

So, as the week progresses and more traders leave for their respective “extended” 3-day weekends, there’s fewer buyers and sellers left on Wall Street to connect for a trade.  As a result, mortgage bond prices move across larger gaps than on a “normal” day which, in turn, translates into faster, larger changes in rates.

This phenomenon can be exaggerated during periods of economic uncertainty — like what we’re in now — and, furthermore, there’s a bevy of important data set for release this week including the FOMC Minutes, inflation data, and August jobs figures.

In other words, rates would have been volatile without the vacation week. The presence of Labor Day just piles on.

Mortgage rates may rise this week, or they may fall.  Either way, if you have a chance to lock something favorable and within your budget, consider doing it.  Rates are at all-time lows and likely won’t last.

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What’s Ahead For Mortgage Rates This Week : August 30, 2010

Posted in Weekly Review by southorangecounty on August 30, 2010

Existing Home Supply (July 2009 - July 2010)Mortgage markets improved last week despite a major mortgage bond sell-off Friday afternoon. Prior to the jump, conforming mortgage rates had cut new, all-time lows by Thursday, only to lose up to 0.250 percent on the last day of the week.

Meanwhile, the same type of news that drove rates lower Monday through Thursday also contributed to rates rising Friday — revised projections for the U.S. economy.

Early in the week, “bad” news piled on which, in turn, lowered expectations for the economy and pushed mortgage rates down:

Then, on Friday, two events revised the market’s expectations back higher:

When Chairman Bernanke talks, markets listen. His comments about the U.S. economy helped fuel that late-Friday surge in mortgage rates last week.

This week, the momentum could continue — depending on the data. 

There’s a lot for markets to digest this week including key inflation figures from the government; home value data from Case-Shiller; Fed Minutes from the Federal Reserve; and, the always-important jobs report due Friday.

Since April, mortgage rates have been on a downward trajectory and that may continue this week.  Or, it may not. If you own a home and haven’t talked to your loan officer about a refinance, now is as good a time as any — rates are at historic lows and could rebound at any time.

Last June, mortgage rates rose 1.125% in 10 days. Under the right circumstances, it could happen again.

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Home Affordability Rankings For 225 Metropolitan Statistical Areas

Posted in Home Values by southorangecounty on August 27, 2010

Home Affordability - Top and Bottom 5 markets 2010 Q2

With home prices holding firm and mortgage rates still dropping, home affordability is reaching new heights.

According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between April-June 2010 were affordable to families earning the national median income.

It’s a slightly higher reading as compared to last quarter, and the second highest reading in the survey’s history.

As with all aspects of real estate, however, home affordability varies by locale. 

For example, 97.2% of homes sold in Syracuse were affordable for families making the area’s median income, earning the New York city its first “Most Affordable Major City” designation.  Indianapolis was the first quarter winner.

On the opposite end of the spectrum, the “Least Affordable Major City” title went to the New York-White Plains, NY-Wayne, NJ area for the 9th consecutive quarter.  Just 19.9% of homes are affordable to families earning the local median income, down 1 percent from last quarter.

The rankings for all 225 metro areas are viewable on the NAHB website but regardless of where you live, buying a home is as affordable as it’s ever been in history. Furthermore, because home values are in recovery and mortgage rates may rise, the market is ripe for home buyers in Orange County.

All things equal, buying a home may never be this inexpensive again. If you were planning to purchase later this year, you may want to move up your time frame.

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Fewer California mortgages are in default

Posted in Foreclosures, Loan modifications, Real estate, short sales by southorangecounty on August 26, 2010

NEW YORK (CNNMoney.com) — Fewer mortgage borrowers are delinquent on their loan payments, according to the latest data from the Mortgage Bankers Association.

The nation’s overall delinquency rate dropped to 9.85% in the second quarter, down from 10.06% of all loans outstanding three months earlier.

Even better, the percentage of seriously delinquent loans — ones 90+ days late or already repossessed by lenders — dropped to 9.11% from 9.54% in the first quarter.

The drop in loans 90 days or more late was the biggest the MBA has ever recorded, according to the MBA’s chief economist, Jay Brinkmann. “That shows we’re making headway,” he said.

He cited three reasons for the improvement:

  • Fewer loans are coming into the default process;
  • The homebuyers tax credit, which increased demand for homes, generated many pre-foreclosure sales, removing the attached delinquent loans from the statistics;
  • The government- and lender-led mortgage modifications “cured” some payment problems.

However, even with those bright spots, there was one troubling finding: First-time delinquencies increased after four quarters of decline. It inched up to 3.51% in the second quarter from 3.45% in the first quarter. According to Brinkmann, the reversal reflects the weakness in both the housing market and the overall economy.

“It’s a question of jobs,” he said. “It takes a paycheck to make a mortgage payment.”

Underscoring the trend is the foreclosure trend among borrowers with conventional loans, like 30-year, fixed rate mortgages. They accounted for nearly 36% of foreclosure starts during the quarter. And these safe loans rarely get into trouble unless they lose employment or income.

The four worst hit states — California, Florida, Arizona and Nevada — still account for nearly 60% of national delinquencies, but California’s numbers dropped dramatically this year. At the end of 2009, California foreclosure starts made up nearly 20% of the nation’s total. That dropped to 14.7% during the second quarter.

Another positive trend is the gradual downturn in the number of borrowers who are underwater on their mortgages, owing more than their homes are worth.

CoreLogic reported today that the rate of borrowers underwater dropped to 23% in the second quarter from 24% in the first.

When borrowers fall underwater, it increases the chance that they’ll lose the homes. Brinkmann calls it one of the two “triggers” that lead to foreclosure.

If homeowners have positive equity, they can use it as a source of cash to pay bills, including mortgages. But if their cash reserves are gone and they can’t afford to make payments because their income has dropped, foreclosure is almost inevitable.

CoreLogic found that negative equity is worst in five states: Nevada (68%), Arizona (50%), Florida (46%), Michigan (38%) and California (33%).

By Les Christie, staff writer, CNNMoney.com

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New Home Sales Drop In July — Just Like Existing Home Sales

Posted in New Home Sales by southorangecounty on August 26, 2010

New Home Supply July 2009 - July 2010One day after the National Association of Realtors released the softest Existing Home Sales report since 1995, the U.S. Census Bureau released a similarly-weak New Home Sales report.

Americans bought just 276,000 newly-built homes in July. That marks the fewest units sold since the government started keeping records in 1963.

In addition, although new home inventory actually dropped 2,000 units in July, the slowing sales pace still managed to push the national supply higher by 1.1 months.  At July’s rate of sales, the nation’s new home inventory would be exhausted in just about 9 months.

None of this news should surprise you, though. It’s all been foreshadowed for weeks.

First, Single-Family Housing Starts have dropped in every month since April.  A “housing start” is a when a home starts construction and, because fewer homes are under construction, we should expect fewer homes to be sold.

Second, Building Permits are down.  The number of new permits peaked in March and have fallen 23 percent since.

And, lastly, home builder confidence ranks at its lowest levels since early-2009. A contributing factor in that pessimism is dwindling buyer foot traffic.

Regardless, there’s two sides to the story. Although the New Home Sales data looks bad for builders, it can be terrific  for you. This is because new homes are more likely to be discounted when the sales cycle favors buyers.

Coupled with ultra-low mortgage rates, the cost of buying a newly-built home in Coto de Caza may have just become cheaper.

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Existing Home Sales Plummet In July; Home Buyers Gain Leverage

Posted in Existing Home Sales by southorangecounty on August 25, 2010

Existing Home Sales July 2009 - July 2010The number of home resales plunged by 1.4 million units in July, according to the National Association of Realtors®’ Existing Home Sales report.

It’s a drop of 27 percent from June; single-family home resales are at the report’s lowest levels since May 1999.

Furthermore, because of the sharp drop in sales volume, home inventories are spiking.

Homes for sale nationwide fell just short of 4 million units in July and, at the current sales paces, it would take 12.5 months for the existing inventory to be absorbed.

Home supply was just 8.9 months in June.

For home sellers in Trabuco Canyon , the Existing Home Sales report is a bit of bad news.  Fewer sales and larger inventories put negotiation leverage in the hands of the buyers which, in turn, creates downward pressure on home prices.  It may also increase time-on-market.

For home buyers, however, the data is decidedly welcome. After a stimulus-driven spring buying season that favored sellers, the summer and early-fall market seem to favor buyers. More choices and more leverage is a positive.

It helps that home affordability is up, too. 

Although there’s reports that home values are rising, their modest gains are more than countered by the ongoing rally in mortgage rates. Freddie Mac says that 30-year fixed rate mortgage rates are at their lowest levels in history and, at today’s rates, every one-eighth drop in mortgage rates roughly offsets a 1.5% increase to home price.

Mortgage rates are down 0.75 percent since mid-April.

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Bank Mortgage Lending Policies Appear To be Easing

Posted in Mortgage Guidelines by southorangecounty on August 24, 2010

Senior Loan Officer Opinion Survey on Bank Lending PracticesThe tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.

According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges. 

During that period, eight in 10 lenders added hurdles.

For mortgage applicants in Coto de Caza , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of restriction.

Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters.  There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.

That said, lots of homeowners are still getting loans.

 

Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.

According to Freddie Mac, mortgage rates are as low as they’ve been in history.

So, if you’re among the many wondering if now is the right time to buy a home — or refinance one — remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.

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What’s Ahead For Mortgage Rates This Week : August 23, 2010

Posted in Weekly Review by southorangecounty on August 23, 2010

Refi Boom stretches household dollarsMortgage markets stalled last week in back-and-forth trading as Wall Street grappled with weak housing data, falling builder confidence, and worsening jobs numbers nationwide.

Because markets were volatile, rate shopping was challenging.

Conforming mortgage rates did managed to make a new all-time low last Thursday but quickly gave up those gains. Most of Friday afternoon was spent in the red and, as a result, for the second straight week, mortgage rates failed to fall overall.

But, although last week’s action puts a damper on this summer’s mortgage rate rally, the Refi Boom is still going strong.

According to Freddie Mac, as compared to April 8 when mortgage rates touched their recent high-point, pricing is hugely improved across 3 popular loan products.

  • 30-year fixed : Then, 5.21%; Now, 4.42%
  • 15-year fixed : Then, 4.52%; Now, 3.90%
  • 5-year ARM : Then, 4.25%; Now, 3.56%

As an example of potential savings, a homeowner in California with a $250,000 30-year fixed rate mortgage would save $96 per month at today’s rates as compared to April’s. 

Over the life of a loan, that’s a savings of $34,560.

This week, it’s unlikely that the Refi Boom will meet its end, but that doesn’t mean you should wait for rates to fall further. Mortgage rates tend to change quickly and without notice, and should rates rise, you may find that you’ve missed the market bottom.

If today’s rates appeal to your finances and budget, consider locking something in and moving forward.

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Mortgage Rates Make New Lows For The 9th Week In A Row

Posted in mortgage rates by southorangecounty on August 20, 2010

Freddie Mac mortgage rates (January - August 2010)

Another week, another new low for conforming mortgage rates.  In fact, this week marks the 9th time in a row it’s happened.

Mortgage rates are (again) at their lowest levels in history.

The data comes from the Freddie Mac, a government group and major loan securitizer for the U.S. mortgage market. Freddie Mac’s weekly survey is among the most widely-cited reports on mortgage rates and is the data used in home affordability models, among other statistics.

The 30-year fixed rate is averaging 4.42% nationally with an accompanying cost of 0.7 points. 1 point is equal to 1 percent of the loan size.  This week’s reported rate is lower by 0.02 percent from last week, and lower by 0.70 percent from one year ago.

On a region-by-region basis, though, “average” 30-year fixed mortgage rates are different.

  • Northeast : 4.44 with 0.6 points
  • Southeast : 4.44 with 0.8 points
  • N. Central : 4.42 with 0.4 points
  • Southeast : 4.46 with 0.5 points
  • West : 4.35 with 0.8 points

But this isn’t to say that mortgage pricing is better in, say, California as compared to Florida. Note that the West Region — with the lowest average rate — has the highest required points.  This is because mortgage rates and mortgage fees move in opposite directions.  The type of low-rate/high fee structure common in the West may be right for some home buyers and would-be refinancers, but may not be right for others.

What’s important to remember is that, as a rate-shopper in California , it’s always your choice on how your loan is structured. Banks offer multiple set-ups — with or without points — to meet every applicant’s budget.

As mortgage rates continue to slide and touch new lows, it’s an excellent opportunity to see what your lender can do for you. Low rates won’t last forever.

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How Much Should You Expect To Pay In Mortgage Closing Costs?

Posted in Budgeting by southorangecounty on August 19, 2010

Closing costs by state, 2010

How much does a mortgage cost? The answer depends on where you live. But no matter which your locale, chances are strong that you’ll pay more for a mortgage in 2010 as compared to 2009.

According to Bankrate.com and its annual Closing Cost Survey, a typical $200,000, purchase mortgage now carries an average $3,741 in closing costs — up nearly 37 percent from last year.

As defined by Bankrate.com, “closing costs” is defined as the sum of two numbers.  The first group is labeled “origination charges”, a category that includes such items as underwriting fees, application fees and processing fees.  These fees are paid directly to the loan originator’s company at the time of closing.

The second grouping of costs is labeled “third-party fees”.  Third-party fees include appraisals, credit reports, settlement fees and title searches — items paid in connection with the loan, but not paid to the lending bank or broker.

It’s unclear why closing costs appear to have escalated into 2010, but Bankrate.com suggest that recently-enacted federal lending laws are a culprit:

  1. The new law requires loan officers to be accountable to a Good Faith Estimate’s accuracy. Bankrate.com’s prior-year surveys may have been “understated”, therefore, because of a lack of accountability.
  2. The cost of federal compliance is high, and banks may be passing on compliance costs to consumers

To see the complete list of closing costs by state, including where California ranks, visit the Bankrate.com website.

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