Home values rose in March, according to the Federal Home Finance Agency’s most recent Home Price Index. Values were reported higher by 0.3 percent, on average, from February.
We use the phrase “on average” because the Home Price Index is broad-reaching, national housing statistic. It ignores the dynamics of neighborhood real estate markets like Willow Glen as well as citywide markets like San Jose , too.
Instead, the Home Price Index focuses on state and regional statistics.
For example, in March 2010 as compared to February:
- Values in the East South Central region rose 2.5%
- Values in the Mountain states rose 1.1%
- Values in the Middle Atlantic states fell 1.0%
Of course, none of this data is especially helpful for today’s home buyers and sellers.
Real estate is a local phenomenon that can’t be summarized by state or region. What matters most to buyers and sellers is the economics of a neighborhood and that level of granularity can’t be served up by a national housing report like the Home Price Index.
The Home Price Index data is additionally unhelpful to buyers and sellers in that it reports on a 2-month delay.
In other words, Home Price Index is not even a fair reflection of today’s market — it highlights the real estate market as it existed 60 days ago.
So why is the Home Price Index even published? Because government, business and banks rely on the reports. As a national indicator, the Home Price Index helps governments make policy, businesses make decisions, and banks make guidelines. This, in turn, trickles down to Main Street where it impacts every one of us — and eventually influences real estate.
Since peaking in April 2007, the Home Price Index is off 13.44 percent.
Sales of existing homes rose in April, buoyed by an expiring home buyer tax credit and exceptionally low mortgage rates.
As compared to March, April’s Existing Home Sales rose by 410,000 units nationwide — the second straight month of large gains. An “existing home” is a home resold by a prior owner (i.e. not new construction).
It’s a solid report for housing overall, with rising sales suggesting that the real estate market’s recovery is ongoing. However, the data presented a mixed message.
According to the National Association of Realtors®, although the number of homes sold ticked higher in April, so did the supply of existing homes for sale, too.
Sellers are now listing homes faster than buyers can buy them.
After adding another 0.3 months of supply in April, resale home supply is nearly two full months larger than at November 2009’s low-point. This put downward pressure on home prices.
Furthermore, because 49% of April’s buyers were first-time buyers and the tax credit has since ended, we can expect that sellers will continue to outweigh buyers in the months ahead.
It presents an interesting opportunity for June’s home buyers. Mortgage rates are still at their lowest levels of the year — despite expert predictions to the contrary — and homes remain affordable. Plus, in a lot of markets, home values have started to creep higher.
There’s good values and good rates but neither should last long. For the next few weeks, real estate may be in its 2010 sweet spot.
If you were thinking of moving in September of this year or later, consider moving up your timeframe.
Another week, same old story.
Mortgage markets improved again last week on worsening news out of Greece and the Eurozone. Then, as contagion mentality set in, U.S. mortgage bonds gained and mortgage rates fell.
It’s the 4th straight week in which conforming mortgage rates in California improved and, against the expectations of experts everywhere, it’s now late-May and mortgage rates are as low as they’ve been all year.
If you’re a homeowner and haven’t looked at refinancing lately, it may be a good time to call your loan officer to hear your options. Especially because low rates can’t last forever.
The European market concerns are likely overblown and the U.S. economy continues to expand at a measured pace.
This week, housing and inflation data takes center stage.
- Monday : Existing Home Sales data
- Tuesday : Case-Shiller Index; Home Price Index
- Wednesday : New Home Sales data
- Thursday : GDP
- Friday : Personal Consumption Expenditures
Each of these data points has the power to move mortgage rates — especially because trading volume is expected to thin as the 3-day weekend nears. As volume drops on Wall Street, it will be harder to match buyers and sellers and, as a result, mortgage pricing will get (more) erratic.
Rates should be most stable at the start of the week. It may be the best time to lock a rate.
With home prices still relatively low and mortgage rates trolling near their all-time best levels, it’s no surprise that home affordability is extraordinarily high in San Jose and most U.S. markets.
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 January-March 2010 were affordable to families earning the national median income.
It’s the second highest reading in the survey’s history.
Of course, on a city-by-city basis, home affordability varies.
In the first quarter of 2010, for example, 98.7% of homes sold in Bay City, Michigan were affordable for families earning the area’s median income and in Indianapolis, the percentage was almost 95 percent.
Indianapolis has held the top quarterly ranking for close to 5 years now.
On the opposite end of the spectrum, the New York-White Plains, NY-Wayne, NJ region earned the “least affordable” metropolitan area for the 8th consecutive quarter. Just 20.9% of homes are affordable to families earning the local median income.
The rankings for all 225 metro areas are available on the NAHB website but regardless of where your town ranks, home affordability remains high as compared to historical values but it likely won’t last long. Home values are recovering in many markets and mortgage rates won’t stay this low forever.
All things equal, buying a home may never come this cheap again. If you were planning to buy later this year, consider moving up your timeframe.
After starting the day in the red, mortgage rates rebounded Wednesday afternoon after the Federal Reserve released its April 27-28, 2010 meeting minutes.
It’s good news for home buyers and would-be refinancers in San Jose. Mortgage rates continue to troll along multi-year lows.
“Fed Minutes” are lengthy, detailed recaps of Federal Open Market Committee meetings, not unlike the minutes you’d see after a corporate conference, or condo association gathering. The Federal Reserve publishes Fed Minutes 3 weeks after each respective FOMC get-together.
The Fed meets 8 times annually.
Because of the minutes’ content and density, it’s of tremendous value to Wall Street and investors. Fed Minutes provide a glimpse into the conversations and debates that shape the country’s monetary policy.
The broad scope of the published meeting minutes are in sharp contrast to the more well-known, post-meeting press release which reads more like a policy summary.
And the extra words matter.
Here’s some of what the Fed discussed last month:
- On Greece : A crisis in Greece could slow U.S. domestic growth
- On housing : Despite government support, growth appears to have stalled
- On its mortgage buyback program : There’s little reason to sell mortgage bonds right now
When the markets saw the Fed Minutes, what had been a down day for bond markets turned positive. The less-than-sunny outlook for the near-term U.S. economy sparked bond sales, pushing prices higher.
Mortgage rates move opposite mortgage bond prices.
Wall Street is always in search of clues from inside the Fed about what’s next for the economy and post-FOMC minutes usually give good fodder. April’s meeting was no different.
For now, mortgage rates remain near all-time lows but once the Eurozone issues are settled, rates are likely to rise. If you haven’t locked a mortgage rate, your window may be closing. Once the economy is turning around for certain, mortgage bonds will be among the first of the casualties.
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Posted by
Elva Wormley |
Categories:
FOMC | Tagged:
FOMC,Fed Minutes |
Single-family Housing Starts rose by 55,000 last month, suggesting ample housing stock from which San Jose can choose this summer.
The report is a slightly larger read than what economists had expected.
Furthermore, for the first time since June 2009, Housing Starts appears to have broken away from its half-million unit plateau. 593,000 new homes were started in April.
Ordinarily, both Wall Street and Main Street would celebrate a strong housing sector report like this, but the Department of Commerce’s press release also held two cautionary notes.
The first point of caution is a mathematical one. Although single-family starts increased by 10.2 percent, the survey had a Margin of Error of 10.7 percent. This means that Housing Starts may have fallen by 0.5 percent and the report is statistically worthless.
The second point of caution is tied to Building Permits, a complementary data point in the same Department of Commerce report. In April, Building Permits fell by almost 11 percent with a tiny Margin of Error of less than 2%. This tells us that builders are pulling back — a sign of low housing market confidence
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Housing Starts, therefore, should ease though June and July.
Home prices are based on housing’s supply and demand. For the next few months, supply should elevate, helping prices remain suppressed, after which, supply should dwindle.
The best time to buy a home, therefore, may be now. As the summer months come to close, we may find that buyers vastly outweigh sellers.
As lenders tighten mortgage guidelines for San Jose home buyers, minimum downpayment requirements are increasing. Several years ago, you could finance a home with nothing down. Today, most conventional mortgages require at least 10 percent.
Anecdotally, guideline changes have led to an increase in the number of home buyers accepting cash gifts from family.
Gifts are allowed in most cases but the problem is, if you don’t accept the gift in a “lender-friendly” way, the mortgage underwriter could reject it, and negate it.
You can’t just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.
- Provide an acceptable gift letter signed by all parties
- Provide documentation of the gifter’s withdrawal of funds via teller receipts
- Provide documentation of the giftee’s deposit of funds via teller receipts
Lenders require these 3 steps for two basic reasons. First, they want to make sure that the cash gift is “clean” (i.e. not laundered). Second, they want to make sure the gift is really a gift and not a loan-in-disguise.
It’s why lenders typically require that the loan application be accompanied by a signed, dated letter.
For example:
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].
This is a gift — not a loan — and there is no expectation of repayment.
Signed,
[Signature of gifter]
As an additional step, home buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit. If the cash gift is for $10,000, therefore, the bank’s deposit slip should indicate that a $10,000 deposit was made — nothing more, nothing less. Don’t add a random $100 deposit to the transaction, in other words. The $100 deposit should be a separate transaction.
It’s also worth noting that gifting funds between family members can create both legal and tax liabilities. If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.
Mortgage markets improved last week — but barely — as ongoing doubt surrounding the health of Greece and the Euro pushed additional investors into safe assets, including mortgage bonds.
Mortgage rates were wildly volatile between Monday and Friday before closing the week slightly better than their best levels of the year.
It’s the 3rd straight week in which mortgage rates improved but that doesn’t necessarily mean the trend for lower rates will continue. The last two times mortgage rates teased these levels, they immediately spiked higher.
It happened once in February 2010, and again, 4 weeks later in March.
This week, the same could happen. After a week-and-a-half without much data of consequence, the newswires will be on overtime.
The first release to watch is Monday’s National Association of Home Builder’s Housing Market Index. It’s not a “mainstream” release, per se, but the index gives some insight into how homebuilders are feeling about the economy and homebuilders are on the frontlines of the housing market. The stronger the report, the worse it should be for mortgage rates going forward.
The same goes for Tuesday’s Housing Starts and Building Permits numbers.
Also on Tuesday, the government releases the Producer Price Index. The Producer Price Index is like a “cost of living” report for U.S. businesses — it measures the change in operating cost from mont-to-month and from year-to-year.
PPI is viewed as a precursor to inflation and inflation is bad for mortgage rates. Therefore, if the Producer Price Index reads higher-than-expected, mortgage rates will rise. If PPI is in-line, rates in California should hold steady.
Then, on Wednesday, the Consumer Price Index is released. Again, if costs are rising, mortgage rates will likely follow.
The week closes with the release of the Federal Reserve’s minutes from its last meeting in April and the jobs figures. All in all, a busy week of data and mortgage rates could change by a lot.
If you’re still shopping for the market bottom, luck’s been on your side but there’s a point when it’s best to just lock in. This week may be that point.
Talk to your loan officer about today’s market and make yourself a game plan for locking a rate. Rates have never stayed this low, for this long, and this week doesn’t figure to be much different.
A mortgage approval is never final until it’s funded.
A host of things can “go wrong” while your home loan is underway. Some are in your control, many more are not. And just being aware of some potential pitfalls could help save your loan down the road, and your peace of mind today.
MSN Money ran a summary piece on the topic titled “10 Things That Can Kill A Home Loan“.
It’s an excellent article because, unlike most “get approved” articles that advise against things like buying a car before closing, or opening a bunch of new credit cards, the MSN Money piece addresses more uncommon factors that can lead to a similar loan turndown.
For example, a home may be unfundable if it’s unsuitable for human habitation — a condition you may not discover until after a thorough home inspection’s been made. Broken windows, lack of plumbing, and/or major foundation damage are all deal-breakers with a lender.
Either fix the home prior to closing, or don’t close at all.
Homes in “declining markets” have danger spots, too. Especially for conforming mortgage applicants with less than 20% equity.
Because of how private mortgage insurers operate, some homes carry tougher, ZIP code-based PMI eligibility requirements. As a mortgage applicant, it’s important to understand this because you may be PMI-eligible in one neighborhood, but not in another.
There’s others ways in which a mortgage approval can go bad, too:
- You’re self-employed and your income was lower last year versus the year prior
- Your tax return shows large amounts of unreimbursed employee expenses
- You failed to return required paperwork to the lender within a reasonable time frame
Mortgage approvals are delicate and, despite an improving economy, lenders still operate with caution. Talk with your real estate agent and your loan officer and put together a game plan.
The best way to beat the mortgage system is to know the rules before you start to play.
The national foreclosure rate is finally falling.
According to foreclosure-tracking firm RealtyTrac.com, the number of foreclosure notices dropped 2 percent between April 2009 and April 2010.
2 percent may not seem like much, but it’s the first time in the history of the RealtyTrac report that the annual foreclosure rate has dropped.
To be sure, foreclosure rates remain elevated — more than 300,000 were reported last month, but default notices appear to be approaching a plateau.
The RealtyTrac report shows some other interesting statistics, too:
- 6 states accounted for more than half of April’s bank repossessions nationwide
- For the 40th month in a row, Nevada topped the nation’s foreclosure rate
- Foreclosure rates dropped in both California and Arizona, 2 foreclosure hot-spots through 2009
The good news for housing doesn’t stop there. 9 of the top 10 leading metropolitan areas for foreclosure-related activity showed a drop in annual activity. Only Reno, Nevada showed an increase.
Buying distressed homes is big business, according to the National Association of Realtors®, accounting for 35 percent of all home resales with a typical discount ranging near 15 percent on value.
But with the discount comes some caution. You need to know how buying a foreclosed can be different from buying a non-foreclosed home.
For example, distressed properties are often sold as-is and may have defects that render them “un-lendable”. Secondly, “quick closings” aren’t usually possible with bank-owned homes — you’re often at the bank’s schedule and mercy.
And, lastly, not all foreclosed homes are searchable online. You’ll usually find more stock if you work with a real estate agent versus searching online.
The RealtyTrac foreclosure report is thorough and can help you gauge what’s happening on a state-by-state level, and in the nation’s largest metropolitan areas. Once you’ve done your research, talk to your real estate agent about what to do next.
There’s still good deals in the foreclosure market — you just have to know where to find them.
