South Orange County Blog from Bob Phillips

Planning Ahead For The Federal Reserve’s Next Move

Posted in Federal Reserve by southorangecounty on July 31, 2012

Fed Funds Rate v 30-Year Fixed RateIn Washington, D.C. today, the Federal Open Market Committee (FOMC) begins a 2-day meeting, its fifth of 8 scheduled meetings this year.

Mortgage rates are expected to change upon the FOMC’s adjournment. Rate shoppers and home buyers of South Orange County would do well to be alert.

The Federal Open Market Committee is a rotating 12-person subcommittee within the Federal Reserve. It’s the group which makes U.S. monetary policy. 

“Making monetary policy” has many meanings but the action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the prescribed interest rate at which banks borrow money from each other overnight.

Since late-2008, the Fed Funds Rate has been near zero percent.

The Fed Funds Rate and Freddie Mac’s 30-year fixed rate mortgage rate move along different paths. Sometimes, the two converge. Other times, they diverge. They’ve been separated by as much as 529 basis points in the past 12 years, and they’ve have been as near to each other as 52 basis points.

Clearly, there’s no correlation between the Fed’s Fed Funds Rate and the common 30-year mortgage. However, with its words, the Federal Reserve can influence the direction in which mortgage rates move — on occasion, by a lot.

We’ll be witness to this Wednesday.

When the FOMC adjourns, it is expected to announce no change in the Fed Funds Rate. Yet, based on the verbiage of the post-meeting statement, mortgage rates will rise or fall accordingly. If the Fed notes that the economy is sagging and that new stimulus is planned, mortgage rates are expected to drop throughout California. This is because new, Fed-led stimulus would be a boon for mortgage markets which would, in turn, drive mortgage rates down.

Conversely, if the Fed acknowledges growth in the U.S. economy and/or little need for new stimulus, mortgage rates are expected to rise.

Either way, expect rates to change — we just can’t know in what direction. The FOMC adjourns at 2:15 PM Wednesday.

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What’s Ahead For Mortgage Rates This Week : July 30, 2012

Posted in mortgage rates by southorangecounty on July 30, 2012

ECB meets ThursdayMortgage markets booked major losses last week after European leaders spoke of their determination to preserve the European Union. Mortgage rates jumped Thursday and Friday as investors sold positions of relative safety, including bonds, and moved their money into stock markets.

Mortgage rates closed the week at a 14-day high and, if not for last week’s GDP figures, conforming mortgage rates in California would likely have closed even higher.

The Commerce Department said GDP slipped to +1.5% last quarter, down from +2.0% from January-March. The slowdown suggests that the U.S. economy may not meet analyst’s 2012 projections, and gives the market hope that the Federal Reserve will add new stimulus at its scheduled, 2-day meeting this week.

The Fed meeting is just one of the story lines affecting mortgage rates this week. For rate shoppers in South Orange County and nationwide, it will be a risky week to float a rate.

For a brief run-down of the events of the week :

  • Wednesday afternoon, the Federal Open Market Committee adjourns. Wall Street believes that the economy has slowed enough to justify new market stimulus. It’s unclear whether the Federal Reserve agrees. If new stimulus is added, and if the package is sufficiently large, mortgage rates should drop. Otherwise, mortgage rates should rise.
  • Thursday, the European Central Bank meets, after which the ECB is expected to announce an aid package for Spain, and a general plan to hold the European Union together. If the plan is well-received by markets, mortgage rates will rise. If the plan is panned, mortgage rates will fall.
  • Friday, the Bureau of Labor Statistics releases its July Non-Farm Payrolls report. Economists expect 100,000 jobs created in July. If the actual figure falls short, mortgage rates should fall.

It’s important to understand that each of these three events represents major risk to rate shoppers. Mortgage rates will be volatile this week, and that volatility is expected to continue until mid-September, at minimum.

If you’re shopping for a mortgage, therefore, the longer you wait to lock, the bigger your mortgage rate risk. Especially with rates at all-time lows; rates have been falling for so many weeks, there’s a lot of ground to cover on the way back up. 

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Pending Home Sales Index Falls Just Short Of 100

Posted in Housing Analysis by southorangecounty on July 27, 2012

Pending Home Sales Index June 2012

Home sales appear headed for a mid-summer breather. 

One month after posting a multi-year high, the Pending Home Sales Index retreated to 99.3 in June — a strong reading in its own right.

A “pending home sale” is a home that is under contract to sell, but not yet sold. June’s value of 99.3 marks the 14th consecutive month during which the index showed year-to-year gains.

Last year in June, the index read 90.7.

For home buyers in South Orange County and nationwide, the 14-month winning streak is one worth noting — specifically because the Pending Home Sales Index is different from the other housing market data that tends to make headlines.

Unlike the FHFA’s Home Price Index, for example; or the monthly New Home Sales data which both report on how housing performed in the past, the National Association of REALTORS®’ Pending Home Sales Index looks at how housing will perform in the future.

With high correlation, the Pending Home Sales Index predicts how Existing Home Sales will perform two months hence. This is because 80% of homes under contract convert to “closed sales” within 60 days of going into contract, and many of the rest convert within Months 3 and 4.

In addition, June’s near-100 reading is significant.

The Pending Home Sales Index is normalized to 100, a value which corresponds to the average home contract activity in 2001, the index’s first year of existence. 2001 was an historically-strong year for the housing market which means that June’s market action was also strong.

For today’s home buyers, the Pending Home Sales Index implies that the current market is somewhat “soft” as compared to May, a scenario which lends itself to buyer-friendly negotiations. Plus, with mortgage rates at all-time lows, home affordability has never been higher.

It’s an opportune time to buy a home. By next month, the market may look different.

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Orange County foreclosures take a dive

“Click on slide show to see charts detailing the drop in O.C. foreclosures.

The number of Orange County homes lost to foreclosure plunged this spring to levels not seen since before banks launched a record-setting rise in property seizures, data from two housing research firms show.

Both firms, DataQuick Information Services and ForeclosureRadar, reported that the number of foreclosure auctions held on courthouse and city hall steps had fallen to below 350 a month – the lowest monthly total in five years.

That’s less than a quarter of the monthly tally when foreclosures hit all-time highs of more than 1,400 a month in the summer of 2008.

Analysts noted that while a healing housing market deserves some of the credit, they warned that banks and government have put the brakes on a still high supply of homes with unpaid mortgages.

“The question is whether these lower … numbers mean that there’s less distress to process, or if we’re just seeing distress get processed at a slower pace,” said John Walsh, DataQuick president.

Specifically, the data show:

  • Orange County had 338 homes either sold at foreclosure auctions in June or taken back by the lenders for lack of a bid, according to ForeclosureRadar. That’s the lowest monthly tally since the firm recorded 313 foreclosures in June 2007.
  • DataQuick’s tally showed O.C. having 343 foreclosures in June. That’s the second lowest since June 2007, the lowest being the 332 foreclosure sales recorded in May.
  • The data from both firms show that foreclosures in O.C. have fallen at least 76 percent since hitting a record of just over 1,440 foreclosures in the summer of 2008.
  • The June foreclosure tally is about half the monthly average for the past five years. According to ForeclosureRadar, O.C. averaged 701 foreclosures a month since June 2007, while DataQuick shows the county average at 671.
  • Both firms showed that Orange County homeowners lost around 42,000 homes – or more — to foreclosure since the crisis began.
  • The tally of notices of default – a formal filing that starts the foreclosure process – likewise has fallen, both firms show. According to DataQuick, lenders filed 1,249 notice of default in June and that defaults had gotten as low as 1,019 last December. By comparison, the county averaged nearly 1,800 notices of default a month for the past five years.

The trend is happening statewide. DataQuick reported Monday that California foreclosures had fallen in the spring to the lowest number for any quarter since the spring of 2007.

“Obviously the economy has been on the mend – however slowly,” said Walsh, the DataQuick president.

Also contributing to the drop: Banks have sped up the process of either modifying loans or allowing owners to sell their homes for less than is owed on the mortgage (or a “short sale”)  ( End of excerpt.)

( From the Orange County Register, an article by Jeff Collins, July 24th, 2012 )

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New Home Sales Slow After Fast Start To 2012

Posted in Housing Analysis by southorangecounty on July 26, 2012

New Home Supply 2010-2012

The number of newly-built homes sold slipped 8 percent in June from the month prior, says the U.S. Census Bureau in its latest New Home Sales report. The June data shows 350,000 homes sold nationwide on a seasonally-adjusted, annualized basis.

The home sale tally fell short of Wall Street expectations but the Census Bureau revised higher its previously-released results for March, April and May by a collective 33,000 units. This left the June New Home Sales report as the weakest of the last five months, yet still stronger than the 21 months preceding February.

In other words, despite retreating from May, the June New Home Sales data was still quite strong. As compared to June of last year, sales of newly-built homes are higher by 15% and the national inventory of new homes for sale is down to 144,000 units.

This marks a 13 percent inventory reduction in just twelve months.

At the current sales pace nationwide, the complete stock of new homes would “sell out” in 4.9 months, a noteworthy data point because analysts believe that a 6.0-month supply of homes marks a market in balance. Home supplies of below 6.0 months suggest a “seller’s market” where sellers have pricing power and excess leverage in negotiations. 

Home supplies have been south of 6.0 months since October 2011. This is the same month that marked a shift with other housing data points, too, including Existing Home Sales and the Home Price Index.

Since October 2011, the average new home sale price is higher by 6% nationwide, a trend that should continue in South Orange County through the end of 2012 and into 2013 — especially with mortgage rates at new all-time lows and home affordability at all-time highs. As more buyers enter the market amid limited supply, prices are expected to rise.

If you’re a home buyer in search of new construction, therefore, the best new home “deals” you may find may be the ones you find today.

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Home Values Rose Another 0.8% In May 2012

Home Price Index from peakThe housing market’s bottom is 9 months behind us. Home values continue to climb nationwide.

According to the Federal Home Finance Agency’s Home Price Index, home values rose 0.8% in May on a monthly, seasonally-adjusted basis. May’s reading marks the sixth time in seven months that home values rose.

Values are now higher by 4 percent since the market’s October 2011 bottom.  Also, since peaking in April 2007, the FHFA’s Home Price Index is off 16.0 percent.

As a South Orange County home buyer or seller, though, it’s important to understand what the Home Price Index measures. Or, more specifically, what the Home Price Index doesn’t measure.

Although widely-cited, the HPI remains widely-flawed, too. It should not be your sole source for real estate data.

As one example of how the Home Price Index is flawed, consider that the HPI only tracks the values of homes with an associated Fannie Mae- or Freddie Mac-backed mortgages. Homes with mortgages insured by the FHA are excluded, as are homes paid for with cash.

5 years ago, this wasn’t a big deal; the FHA insured just 4 percent of the housing market and cash sales were relatively small. Today, though, the FHA is estimated to insure more than 30% of new purchases and cash sales topped 17 percent in May 2012.

That’s a sizable subset of the U.S. housing market.

A second flaw in the Home Price Index is that it tracks home resales only and ignores new home sales. New home sales represent roughly 10% of the today’s housing market, so that’s a second sizable subset excluded from the HPI.

And, lastly, we can’t forget that the Home Price Index is on a 60-day publishing delay.

It’s nearly August, yet we’re only now receiving home valuation data from May. A lot can change in the housing market in 60 days, and it often does. The HPI is not reporting on today’s market conditions, in other words — it’s reporting on conditions as they existed two months ago. Information like that is of little use to today’s buyers and sellers.

For local, up-to-the-minute housing market data, skip the national data. Talk with a local real estate agent instead.  In South Orange County, California, that would be me.  Give me a call, or shoot me an email, and let’s talk about real estate.

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Mortgage Rates Down 1 Percent In One Year

Posted in mortgage rates by southorangecounty on July 24, 2012

Freddie Mac Mortgage Rates

Another week, another new low for mortgage rates. 

According to Freddie Mac’s weekly Primary Mortgage Market Survey, the 30-year fixed rate mortgage rate fell 3 basis points to 3.53% last week nationwide. The 3.53% mortgage rate is available to mortgage applicants who are willing to pay 0.7 discount points, on average, plus a full set of closing costs.

One year ago, the 30-year fixed rate mortgage rate was 4.52%. Today, it’s nearly one percent lower. For every $100,000 borrowed at today’s rates as compared to July 2011, a mortgage applicant will save $57 per $100,000 borrowed, or $684 per year.

Over 30 years of a loan, those savings add up.

30-year fixed rate mortgage rates have now dropped through 5 consecutive weeks, and in 11 of the last 12 weeks, a streak dating back to late-April. Depending where you live, however, you may not get access to 3.53% mortgage rates. As Freddie Mac’s survey reveals, mortgage rates vary by region.

Last week, mortgage rates by region were listed as follows :

  • Northeast Region : 3.56% with 0.7 discount points 
  • West Region : 3.49% with 0.7 discount points
  • Southeast Region : 3.58% with 0.7 discount points
  • North Central Region : 3.52% with 0.7 discount points
  • Southwest Region : 3.56% with 0.7 discount points

Homeowners and home buyers in California, Oregon and Washington, therefore, received the lowest rates in the country, on average. Owners and buyers in Florida and Georgia, by contrast, received the highest rates.

This week, though, mortgage rates are lower everywhere.

With Spain at risk for a sovereign default and China warning of slow growth, mortgage rates began the week by falling yet again. If you’re eligible to refinance, therefore, the timing may be right to lock a mortgage rate. Similarly, if you’re an active home buyer in South Orange County , today’s low rates will bolster your maximum purchasing power.

Talk to your loan officer about capitalizing on the lowest rates of all-time. Rates throughout California may not rise beginning next week, but when they do rise, they’ll likely rise quickly.

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What’s Ahead For Mortgage Rates This Week : July 23, 2012

Posted in mortgage rates by southorangecounty on July 23, 2012

Freddie Mac mortgage ratesMortgage markets improved last week on expectations for new Federal Reserve stimulus, plus ongoing concerns about the European Union’s future.

Mortgage-backed bonds climbed to new all-time highs, which helped conforming mortgage rates drop to new all-time lows.

The average 30-year fixed-rate mortgage rate is now 3.53% nationwide, according to government mortgage-backer Freddie Mac’s weekly mortgage rate survey. The 3.53% rate is available to mortgage applicants willing to pay 0.7 discount points plus a full set of closing costs where 1 discount point is equal to 1 percent of your loan size.

The 15-year fixed-rate mortgage rate dropped last week, too, falling to 2.83% nationwide, on average.

Even as mortgage rates in South Orange County drop, however, rate shoppers should be wary of a potential rate reversal. This is because July’s rapid drop in mortgage rates, mostly, has been fueled by market speculation.

First, with employment data lagging, inflation pressures low, and slower-than-expected economic growth, Wall Street now believes that the Federal Reserve will launch its third round of quantitative easing next week, a move that would likely include large-scale mortgage bond purchases.

New, Fed-led demand for mortgage bonds would lead mortgage rates lower for homeowners and rate shoppers throughout California.

And, second, investors are preparing for a potential sovereign debt default in Spain, the Eurozone’s fourth largest economy. The Greek economy, by contrast, which faces similar struggles, is 5 times smaller than Spain’s. A Spain default, too, would likely lead U.S. mortgage rates lower.

That said, if neither event comes to pass — if the Fed passes no new stimulus and Spain receives an ample-sized bailout — mortgage rates would be expected to rise as Wall Street re-adjusts its expectations for the future.

The change would happen quickly, too.

This week, markets will continue to take their cues from the Fed and the Eurozone, but with an eye toward U.S. housing data. The housing market is linked to economic growth so strong results may lead mortgage rates higher.

The June New Home Sales report is released Wednesday; the June Pending Home Sales Index is released Thursday.

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Big-four lender’s mortgage originations climb 37%

From HousingWire.com           By Jon Prior     July 20, 2012

“Mortgage originations at the big-four banks increased 37% in the second quarter from last year because of the expanded Home Affordable Refinance Program.

Wells FargoJP Morgan ChaseBank of America and Citigroup wrote $205.8 billion in new mortgages in the three months ending June 30, according their combined financial filings.  Originations also increased 7% from the first quarter.

Wells continued to dominate. The San Francisco bank wrote $131.9 billion in new loans during the quarter, more than double originations from the same period last year. Wells said 16% of those new loans came through the Home Affordable Refinancing Program.

The Federal Housing Finance Agency expanded HARP last year to eliminate upfront costs, negative equity caps and some repurchase risk on the original loan – pushing more business to the largest banks.

Wells said 69% of its record $208 billion in mortgage applications were from borrowers looking to refinance under HARP.

Legislation lingers in a grid-locked Congress to expand competition in the program by eliminating repurchase risk on the new loan as well. But analysts predict the HARP boom could begin to fade into autumn, well before any new legislation is expected to pass.

Chase wrote $43.9 billion in new mortgages during the quarter, up 29% from last year and 14.3% from the previous quarter. Originations at its retail branches set a bank record at $26.1 billion.

Bank of America continues to feel the drop off from exiting its correspondent lending channel last year. Originations fell 55% from one year ago to roughly $18 billion, the only yearly decline of the big-four lenders.

The bank ceased selling some mortgages to Fannie Mae as well, though executives said in an investor conference call that it regained some lost retail market share.

Citi originations totaled $12.9 billion, up 17% from last year but still down 10% from the previous quarter.” ( End of article.)

If you – or someone you know – are struggling with your mortgage, and the rate is higher than 5 or 6%, and your property is “underwater” ( Worth less than the loan.)  now is the time to look into one of these refinances.  Even if you think you might not qualify, you really should look into it.  It doesn’t necessarily have to be the same lender you presently make your payments to.

Here is a previous blog post with more details on the HARP 2 program:  http://southoc.info/2012/07/increased-interest-in-the-expanded-harp-program.html

If you need help, I have lenders I can recommend who might be able to help you.  Just give me a call, or shoot me an email.

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Existing Home Supply Ticks Higher To 6.6 Months Nationwide

Existing Home Supply

Home resales slipped a little more than 5 percent last month, putting a slight damper on recent housing market enthusiasm.

According to the National Association of REALTORS®, Existing Home Sales fell to 4.37 million units in June 2012 on a seasonally-adjusted, annualized basis. This is 250,000 fewer home sales per year as compared May’s figures which NAR has revised 2 percentage points higher.

The pace at which homes are selling has slowed, too. As compared to May, the Existing Home Supply rose 0.2 months. At the current pace of sales nationwide, the national home supply would now be exhausted in 6.6 months.

A home supply of 6.0 months is believed to mark a market in balance. There are currently 2.39 million homes for sale nationwide — the lowest total in 3 months and more than 24% below than the listed inventory at this point last year.

Other noteworthy statistics from the Existing Home Sales report include :

  • First-time buyers accounted for 32% of all purchasers in June, down from 34% in May
  • Real estate investors accounted for 19% of all purchasersin June, up from 17% in May
  • Cash buyers accounted for 29% of all purchasers in June, up from 28% in May

In addition, distressed sales as a percentage of all sales was unchanged in June as foreclosures sold for an average discount of 18 percent below market value. Short sales nationwide sold at an average 15 percent discount.

More on “distressed sales” : In June, distressed homes accounted for 25% of all home resales, the smallest percentage of homes sold with such status since the real estate trade group began tracking the data in 2008.

Despite falling home sales and rising home supplies, however, home resales are expected to return to growth in July. Last month’s Pending Home Sales Index spiked to a 2-year high, and 80% of homes under contract close within 60 days. This portends well for July’s Existing Home Sales data, due in 4 weeks.

Low mortgage rates and rising rents in South Orange County and in many U.S. cities continue to fuel the U.S. housing market. Home buyers should expect higher home prices ahead.

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