Rate Jump Turns ‘Fence Sitters’ into Homebuyers

According to national mortgage news, rising house prices combined with a jump in mortgage rates prompted many "fence sitters” to finally commit to purchase a home, quoting the Federal Reserve's Beige Book.

The Fed released its latest assessment of economic activity in the 12 Federal Reserve Bank districts Wednesday afternoon.

The Beige Book notes that the “activity in residential real estate markets increased modestly” during July and August.The Philadelphia district bank reported that some buyers looking for newly constructed homes switched to an existing one due to the jump in rates.
“Philadelphia conveyed that some borrowers apparently preferred to lock-in a mortgage rate for an existing home rather than wait for a new home to be completed and chance higher mortgage rates,” the Beige Book says.(Existing home sales rose 6.5% in July and new home sales fell 13.4%, according to Realtor's and Census Bureau reports). On the lending side, the Beige Book indicates that lending standards are “largely changed” since June. “Purchase mortgage lending continued to grow moderately” in most Fed districts.
Meanwhile, rising prices has increased demand for second mortgages and home equity lines of credit. But demand for refinancing “declined in the New York, Philadelphia, Cleveland and Richmond districts,” according to the Beige Book.

Builder Confidence Soars. Sharpest Rise Since 2002

As per Mortgage news Daily, Low inventories and increasing traffic have unleashed the confidence of new new home builders the National Association of Home Builders (NAHB) said today. Its Housing Market Index (HMI), issued in conjunction with Wells Fargo Bank, jumped eight points in June to a reading of 52. A score of 50 is significant to the Index as it indicates more builders view sales conditions as good than view it as poor. The eight-point jump in the index was the biggest one-month gain since August and September of 2002, when the HMI recorded a similar increase of eight points.

NAHB Chairman Rick Judson said "This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases. With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes."

The HMI is derived from a monthly survey of its builder members that NAHB has conducted for 25 years. Builders are asked to gauge the current market and the market as they expect it will look for the next six months as "good," "fair," or "poor." They are also asked to rate current buyer traffic as "high to very high," "average" or "low to very low." Responses are used to construct three measures of confidence and the composite index.

The index measuring current sales conditions also increased eight points to 56 and the index gauging future expectations was up even more - nine points to 61 - its highest point since March 2006. The index for buyer traffic, while still lagging at 40 was up seven points from May.

"Builders are experiencing some relief in the headwinds that are holding back a more robust recovery," said NAHB Chief Economist David Crowe. "Today's report is consistent with our forecast for a 29 percent increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1 million mark."

The HMI three-month moving average was up in three of the four regions, with the Northeast and Midwest posting a one-point and three-point gain to 37 and 47, respectively. The South registered a four point gain to 46 while the West fell one point to 48.

Current home buying conditions are the best in thirty years. You decided yet?

According to Independence Title, company interest rates have been lowest in the last fifty years. You would think today’s mortgage rates of near 3.875% to 4% would bring happiness (lowest rates since 1950). Instead, some see the low rates as a sign of weakness in housing and the economy weakness, a measure of buyers’ difficulty in getting mortgage loans and/or an indicator of coming deflation. With mortgage rates declining, affordability rises, meaning lower payments to buy that desired house or investment property. Rates are projected to stay low through the end of 2013, early 2014

The historical perspective

Starting around 4%, rates moved up through the 1950's. Then, in 1959-60 home buyers got a taste of 6%. People did not like that rate – it was affordability in reverse. Plus, many mortgages couldn't be refinanced at a lower rate without a penalty payment, so buyers hated getting stuck with the higher rates. The next five years of mid- to high-5% interest rates were palatable, and then they took off in earnest, eventually topping at over 18% in 1981. Ten years ago, consumers thought that rates of 6% were the lowest rates that we would ever see again. Comfortably we can tell you that rates will never be this low again!

Refinancing

Borrowers who might have refinanced once in the past 3 to 5 years months and have 30-year rates in the 5%-5.25% range, should do so again given the drop to current lower rates. Given the narrowing in the jumbo/conforming spread, some jumbo borrowers might also seek to refinance, as might adjustable-rate mortgage borrowers who might prefer to move to fixed-rate mortgages even though their rates are adjusting downward.

If you have not bought or refinanced in the last 2 to 3 years, there is a good chance that you can save 15%, substantial savings today. Affordability is an important factor to watch. Many buyers have already taken advantage of lower rates. It is a well-understood and visible stimulus to act, one of the major reasons the Federal Reserve has kept rates low.

The question is, with homes and rates so affordable, what are the chances to see continued improvement not only in Texas but across the rest of the country this summer and on into 2014?

The amount of market inventory is lacking, do the math. This in turn makes the Texas metros markets prime for:

• Investors: Investors will continue to grow in numbers as they realize housing and real estate are the best risk-adjusted return on their money. Real estate continues to be one of the most undervalued assets available.

• Boomerang buyers: Foreclosed homeowners, who are currently renting homes, will come back in droves. There is not a more affordable time to buy in the last 60 years!

• Entry-level buyers: First-time homeowners, who have been sitting on the sidelines for 6+ years, waiting for a sign of the bottom are looking at price increases in their desired neighborhood and are rushing to become homeowners.

• Move-down buyers: Empty nesters and retirees, who have seen their equity return in their existing home, are buying a home that is more suitable to their current lifestyle, which may or may not include adult children as well as their aging parents. Almost all of the Texas metros have seen a larger portion of this market show up in the last year.

• Moveup buyers: The price appreciation that occurred in the last year has already lifted 1 million underwater homeowners above water nationally, and future price appreciation will lift it even more. The consumer who has been sitting on the sidelines is back buying across all price points due to the affordability factor.

People still want to see the negative portions of the market. Don’t listen to the naysayers. They frequently make one or two negative points, which may be valid, but they don’t understand the big picture.

• Housing is cheap, probably the cheapest many will see in their lifetime (hopefully!!)
• People prefer to own
• Get ready for a surge in home prices!
• Most Texas housing is transforming from cost driven pricing to market driven pricing and will continue in through 2014, just due to the lack of inventory.

Case-Shiller Shows Home Prices Up 4.3% From Year Earlier

Here is an article that was found on Mortgage News.

The S&P/Case-Shiller Home Price Indices (HPI) released this morning outstripped analysts expectations with strong increases in home prices over the 12 months ending in October.  Both the 20-City and the 10-City showed anticipated seasonal weaknesses in October itself, however and along with 12 of the 20 cities, posted a monthly price decrease.

The 10-City Composite Index was up 3.4 percent on an annual basis in October compared to 2.1 percent in September and the 20-City Composite rose 4.3 percent compared to 3.0 percent.  On a month-over-month basis both composites declined 0.1 percent.   S&P/Case-Shiller presents most of its data on a non-seasonally adjusted basis.

In 19 of the 20 cities the annual increase in October was higher than that in September and only two cities, Chicago and New York, had negative annual returns.  The recovery seems well established in some markets; for example Phoenix home prices increased for the 13th consecutive month and San Diego for the ninth.

David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices said, "The October monthly numbers were weaker than September as 12 cities saw prices drop compared to seven the month before.  The five which turned down in October but not in September, were Atlanta, Dallas, Miami, Minneapolis and Seattle. Among all 20 cities, Chicago was the weakest with prices dropping 1.5%, followed by Boston where prices fell 1.4%. Las Vegas saw the strongest one-month gain with prices up 2.8%.

"Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes," Blitzer said, "because home prices tend to be lower in fall and winter than in spring and summer.  Both the 10- and 20-City Composites and 19 of 20 cities recorded higher annual returns in October 2012 than in September. The impact of the seasons can also be seen in the seasonally adjusted data where only three cities declined month-to-month. The 10-City Composite annual rate of +3.4% in October was lower than the 20-City Composite annual figure of +4.3% because the two weaker cities - Chicago and New York - have higher weights in the 10-City Composite."

Blitzer said it is clear that the housing recovery is gathering strength.  Continued annual price gains and the strong performances in both the southwest and in California, both of which were strongly affected by the housing bust, "confirm that housing is now contributing to the economy. Last week's final revision to third quarter GDP growth showed that housing represented 10% of the growth while accounting for less than 3% of GDP."

Even cities at the bottom are showing gains.  Detroit had a 24.2 percent annual increase even though prices there are still about 20 percent lower than they were 12 years ago.  Blitzer also cited 22.5 percent and 22.1 percent increases in San Francisco and Phoenix from their recent lows and prices "comfortably higher" than 12 years ago.

As of October average home prices nationwide were back to autumn 2003 levels.  Measured from their June/July 2006 peaks, the decline for both Composites is approximately 30% through October 2012 and approximately 35% from the June/July 2006 peak values to their recent lows in early 2012. The October 2012 levels for both Composites are about 8.4 to 9% above their early 2012 lows.

In October 2012, 12 MSAs and both Composites posted negative month-over-month returns. Detroit, Las Vegas, Los Angeles, Phoenix, Portland, San Diego and San Francisco were the only cities that recorded positive monthly returns. Denver remained flat.

The S&P/Cash Shiller Home Price Index is a composite of single family home price indices for the nine U.S. Census divisions and is calculated quarterly. The 10- and 20-City indices are weighted averages of metropolitan area indices. Each index has a base value of 100 in January 2000.

Mortgage bill faces tough road in Congress

As per USA Today ,A sharply divided Congress isn't likely to jump at President Barack Obama's challenge for quick passage of a mortgage refinancing bill that supporters say could help millions of homeowners save big each year and boost the economy.
Obama praised the legislation in his State of the Union speech last week, saying the proposal would help more homeowners with mortgages backed by Fannie Mae and Freddie Mac take advantage of low interest rates and refinance their loans.

Even with mortgage rates near a 50-year low, Obama said, too many families that have never missed a payment and want to refinance are being turned down.
"That's holding our entire economy back, and we need to fix it," the president said. "Right now, there's a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today's rates. Democrats and Republicans have supported it before."

HOUSING: States' foreclosure pace affects home Prices

The economy's slow recovery from the recession gives the idea urgency, Obama said. "Send me that bill," he told members of Congress listening to his speech in the House chamber.
The proposal is part of a push by Democrats and the White House to help homeowners take advantage of low interest rates as a way to help the housing market recover and to give the economy a shot in the arm.
While the bill could gain traction in the Democratic-controlled Senate, it faces a rough road in the GOP-run House, where many Republicans favor scaling back the government's role in the housing market as a way of aiding the economy. Similar versions of the measure died in the House and Senate's lame duck sessions last year.
"At the moment, it's an uphill battle," said Rep. Peter Welch, D-Vt., who plans to file the House version of the bill.

JOBS: Housing holds key to full job growth rebound

Welch said he will reach out to Republicans this year in hopes of building more support, but the bill's association with the government-controlled Fannie Mae and Freddie Mac, the federal housing agencies partly blamed for the collapse of the housing market, hurts its support base among GOP lawmakers.
"The American taxpayers have already sunk $190 billion dollars into the operations of Fannie and Freddie," said Rep. Randy Neugebauer, R-Tex., a member of the House Financial Services Committee. "It's time that we wind their operations down instead of using them as a piggy bank for failed programs that further delay the housing recovery.

 "In the Senate, Democrats Bob Menendez of New Jersey and Barbara Boxer of California have legislation to aid borrowers who are current on their loans backed by Fannie Mae and Freddie Mac, but who are not able to refinance because their home values have declined too much.

Nearly 12 million homeowners have Fannie Mae and Freddie Mac loans and stand to benefit refinancing, the two senators said. Many can't refinance at a lower rate because of red tape and high fees. The red tape has reduced competition among banks, so borrowers pay higher interest rates than they would if they were able to shop around more, according to the senators.

The bill also would reduce up-front fees that borrowers pay on refinances and eliminate appraisal costs for all borrowers. The measure seeks to expand the Obama administration's Home Affordable Refinancing Program, which saves an average homeowner about $2,500 per year, they said.

"Homeowners will have more money in their pockets, Fannie and Freddie will see fewer foreclosures, and the housing market and economy will continue building momentum," Boxer said.

Among the bill's supporters are the Mortgage Bankers Association, the National Association of Realtors and the National Association of Home Builders.

"It is another tool that can be out there to help stabilize the housing market and kick start the economy if consumers can, in fact, put another $100 bucks in their pockets every month," said John Hudson, government affairs chairman of the Association of Mortgage Professionals.

Similar proposals by Boxer and Menendez last year got bogged down in the Senate Banking, Housing and Urban Affairs Committee. Republican attempts to add amendments on other housing issues beyond refinancing led to a stalemate.

Twenty Senate Democrats are co-sponsors of this year's bill, but no Republicans have signed on."I support finding ways to smartly streamline the refinance process, but I'm not sure that eliminating all documentation requirements makes sense," said GOP Sen. Bob Corker of Tennessee, a committee member. "I also think we need to quickly move beyond short-term stimulus and start focusing on the structural issues in our housing finance system."Sen. Mike Crapo, the committee's top Republican, declined through a spokeswoman to comment on the bill.Welch's House bill also died during the last Congress. Welch accused Republicans of not wanting to give Obama an election-year boost by passing the mortgage refinance measure.

"Last year was even tougher because it was an election year," said Welch. "The Republican leadership wanted Obama to fail."

Mortgage Applications Recover from Holiday Doldrums

As per mortgage news..Applications for mortgages increased substantially during the week ended January 11 as purchase applications soared to their highest levels in nearly two years.  The Mortgage Bankers Association's (MBA)  Market Composite Index for the first full working week of the New Year increased 15.2 percent on a seasonally adjusted basis and 45 percent on an unadjusted basis compared to the holiday shortened week ended January 4.

The seasonally adjusted Purchase Index was up 13 percent on a seasonally adjusted basis from the previous week to the highest level since April 2011.  The unadjusted index was 47 percent higher than the previous week and 5 percent above that of one year earlier.  The Refinance Index increased 15 percent from the previous week and the refinance share of mortgage activity remained unchanged at 82 percent of total applications.

Purchase Index vs 30 Yr Fixed

Refinance Index vs 30 Yr Fixed

Interest rates for the week were mixed. The average contract rate for 30-year fixed-rate mortgages (FRM) with conforming balances of $417,500 or less remained unchanged at 3.61 percent with points decreasing to 0.38 from 0.41.  The effective loan rate decreased from the previous week.

Jumbo 30-year FRM - loans with balances over $417,500 - rose 10 basis points to 3.88 percent with points unchanged at 0.38.  The effective rate increased. The average contract rate for 30-year FRM backed by FHA increased to 3.39 percent with 0.58 point from 3.35 percent with 0.69 point and the effective rate increased.  The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 2.88 percent, with points decreasing to 0.27 from 0.39 and the effective rate decreased. .The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 2.66 percent from 2.64 percent, with points decreasing to 0.34 from 0.37. The effective rate increased from last week.   The ARM share of activity increased to 3 percent of total applications.MBA's Weekly Application Survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts.  Rates are based on loans with an 80 percent loan-to-value ratio and points include the origination fee.  Base period and value for all indexes is March 16, 1990=100. 

FHA Home loan

What is an FHA Loan?

An FHA loan is a loan that is insured by the Federal Housing Administration (FHA). It is designed to help people, who are in a lower income bracket, purchase a home. The FHA was created through the National Housing Act of 1934 and is designed as a loan program to assist lenders by offering a federal insurance on home loans. It is important to understand that the FHA does not act as a lender and is not a home builder. It is an insurance program to protect the lender in the case that you are no longer able to make your mortgage payments. Recently, the FHA program has undergone some changes to help people buy a home today as a result of the recession and jump in foreclosures.

FHA Loan Requirements

An FHA loan has to be obtained through an FHA approved lender and there are several FHA loan requirements/guidelines that you should be aware of:

• Credit - The FHA will examine your credit history and you will need to show that your credit is in good standing and that you have a proven record of paying your bills on time.
• Loan checklist - There are several things that you will need to submit to the FHA lender in order to be approved for the loan. You should also plan to pay some money out of pocket for the credit report check and for an FHA appraisal on the property you are purchasing.
• Loan limit - Each state and county has its own lending limits when it comes to an FHA loan so you want to be sure to research the guidelines for your area to see if you can qualify.
• FHA mortgage insurance - Part of FHA loan qualifications call for the necessity of carrying mortgage insurance in case you are no longer able to meet your payments.
• Debt ratio - The amount of money that you can borrow on an FHA loan will depend on your debt to income ratio. This is done to help you avoid purchasing a home that you cannot really afford.
• Closing costs - The details of what you will be required to pay, as part of your closing costs, will vary as each FHA office determines what is appropriate.

FHA Loan Limits

The FHA determines how much you can borrow in your area by examining the median price for the type of home that you are looking at in that specific area. This is why loan limits are different for each area and for each state.

FHA Loan Vs Conventional Loan

• Government insured - the biggest difference between an FHA loan and a conventional loan is the fact that an FHA loan is insured by a government agency which a conventional loan is not.
• Credit history - a conventional loan requires a good credit history and has strict requirements you must meet while an FHA loan is a little more relaxed.
• Down payment - With an FHA loan, you can make a smaller down payment. A conventional loan requires a bigger down payment.
• Mortgage insurance - all FHA approved loans include mortgage insurance. Conventional loans use a separate process and you must qualify for the insurance.