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Despite 18% Contract Failure Rate, Home Resales Stay Strong

Posted on October 21, 2011 by joeglez

Existing Home Supply

Despite fewer homes for sale nationwide, the number of home resales remains steady.

According to data from the National Association of REALTORS®, on a seasonally-adjusted, annualized basis, September’s Existing Home Sales eased by 150,000 units, falling to 4.91 million units nationwide.

An “existing home” is a home that’s been previously occupied and, despite last month’s drop, September’s sales volume remains the second-highest on record since April 2011.

This statistic is noteworthy for two reasons :

There are 9.9% fewer homes available for sale as compared to 12 months ago
Contract “failures” are twice as high as compared to September 2010, now averaging 18 percent nationwide

A contract failure is typically the result of homes not appraising for the purchase price; mortgage denials in the underwriting process; and, insurmountable home inspection issues.

Because sales volume is steady, we can infer that more buyers are “in the market” than the final sales tallies would have us believe. This notion is also evident in the Existing Home Supply data.

In September, the number of homes for sale fell by 69,000 nationwide. At the current pace of sales, it would take 8.5 months to “sell out” the complete national inventory. This is more than 2 months faster as compared to September 2010 — a major improvement for the housing market and a sign that home prices should rise soon.

Today’s Phoenixville market exemplifies Supply and Demand. Demand for homes is holding steady as home inventories fall. This creates pressure for home buyers to make offers, and multiple bidding situations become more common. Negotiation leverage shifts to the sellers and the result is that buyers pay higher prices for homes.

Thankfully, mortgage rates remain low.

Freddie Mac reports that the 30-year fixed rate mortgage ticked lower this week, averaging 4.11% nationwide with 0.8 discount points. This means that mortgage payments are lower by $46 per $100,000 borrowed as compared to the high-point of the year.

You may pay more for a new home, in other words, but you’ll pay a lot less to finance it.

Finding Truth In September’s Housing Starts Report

Posted on October 20, 2011 by joeglez

Housing Starts 2009-2011 Headlines in newspapers can be misleading — especially with respect to housing figures. Media coverage of the most recent Housing Starts data serves as an excellent illustration.

Wednesday, the Census Bureau released its September Housing Starts report. In it, the government said that national Housing Starts rose 15 percent in September as compared to August 2011, tallying 658,000 units on a seasonally-adjusted annualized basis.

The September reading is the highest monthly reading since April 2010, the last month of last year’s home buyer tax credit.

The sudden surge in starts is big news for a housing market that has struggled of late, and the press was eager to carry the story. Here is a sampling of some headlines:

U.S. Housing Starts Rise 15%, Hit 17-Month High (MarketWatch)
Home Building Jumps 15% in September (ABC)
New Construction Surges In September (LA Times)

These headlines are each accurate. However, they’re also misleading.

Yes, Housing Starts did surge in September, but if we remove the “5 or more units” grouping from the Census Bureau data — the catgory that includes apartment buildings and condominium structures — we’re left with Single-Family Housing Starts and Single-Family Housing Starts rose just 1.7 percent last month.

That’s a good number, but hardly a great one. And for home buyers and sellers throughout Phoenixville and nationwide, it’s the Single-Family Housing Starts that matter most. Individuals like you and I don’t buy entire apartment buildings. Most often, we buy single-family homes. Therefore, that’s the data for which we should watch.

The good news is that media tales work in both directions.

Building Permits dropped 5 percent last month when the volatile 5-unit-or-more-units category was included from the math. Isolating for single-family homes, we find that permits were unchanged.

This is good housing because 82% of homes begin construction within 60 days of permit-issuance, hinting at a steady, late-fall housing market.

Homebuilder Confidence Rises on Surging Sales Volume, Foot Traffic

Posted on October 19, 2011 by joeglez

Homebuilder Confidence 2009-2011 Homebuilder confidence is rebounding sharply.

Just one month after falling to a multi-month low, the Housing Market Index rebounded four points to 18 for October. It’s the highest reading for the HMI since May 2010 — the month after last year’s homebuyer tax credit expiration.

The Housing Market Index is published monthly by the National Association of Homebuilders and is scored on a scale of 1-100. Readings above 50 indicate favorable conditions for homebuilders. Readings below 50 indicate unfavorable conditions.

The index has been below 50 since May 2006 — a 66-month streak.

The Housing Market Index is a composite reading; the result of three separate surveys sent to home builders each month. Builders are asked about current single-family home sales volume; projected single-family home sales volume over the next 6 months; and current “foot traffic”.

In October, builder responses were stronger in all 3 categories :

Current single-family sales : 18 (+4 from September)
Projected single-family sales : 24 (+7 from September)
Buyer foot traffic : 14 (+3 from September)

Meanwhile, of particular interest to today’s Collegeville home buyers is that builders expect volume to surge over the next two seasons. And, with current sales volume rising and foot traffic strengthening, the fall and winter months could be strong ones in the new homes market.

In addition, the builder trade group press release states that rising costs for materials are squeezing building profit margins.

For buyers, it all adds up higher home prices ahead. As builders grow more confident about the housing market, they’re less likely to make concessions on pricing or upgrades. Rising building costs fortify that argument. The “great deal” will be tougher to negotiate.

At least mortgage rates are low.

Low mortgage rates are keeping homes affordable in Pennsylvania and nationwide. If you’re looking for the right time to buy new construction, therefore, this month may be it.

Foreclosure Rate Drops For The 12th Straight Month

Posted on October 18, 2011 by joeglez

Foreclosures by state September 2011 Foreclosure activity continues to slow throughout the United States.

According to data from RealtyTrac, a national foreclosure-tracking firm, the number of foreclosure filings dipped below 215,000 in September 2011, a 6 percent decrease from August.

A “foreclosure filing” is defined as any foreclosure-related action including Notice of Default, Scheduled Auction, or Bank Repossession.

September marks the 12th straight month in which foreclosure filings fell year-over-year.

There are several reasons why foreclosure filings are down, including an increase in the amount of time it takes banks to move a foreclosure through its pipeline. It now takes a nationwide average of 336 days from the date of initial default notice to bank repossession.

Some states work quicker than others, however, because of a combination of state law and personnel.

Homes in New York take an average of 986 days to foreclose, for example, the longest in the country. Homes in Texas foreclose the quickest, registering just 86 days.

As in prior months, bank repossessions remain concentrated by state. Just 6 states accounted for half of the country’s REO last month:

California : 16.6 percent
Georgia : 8.5 percent
Florida : 8.3 percent
Texas : 6.2 percent
Michigan : 6.1 percent
Illinois : 5.2 percent

Collectively, these 6 states represent just 36 percent of the nation’s population.

By contrast, the bottom 6 states were home to just 192 repossessions last month — 0.3% of the national total. Those 6 states were Alaska, Wyoming, District of Columbia, North Dakota, South Dakota, and Vermont.

For home buyers in King of Prussia , shopping for foreclosed properties can be an excellent way to get “a deal”. Foreclosed homes typically sell at discounts as compared to “non-foreclosed” homes, but are often sold “as-is”. This means that homes listed for sale may be defective or out-of-code.

Before placing a bid on a foreclosed home, make sure that you’re represented by an experienced real estate professional.

What’s Ahead For Mortgage Rates This Week : October 17, 2011

Posted on October 17, 2011 by joeglez

Mortgage bonds suffered through another tough week last week as rising optimism that Eurozone leaders will “rescue” Greece plus stronger-than-expected economic data in the U.S. led bonds lower for the second straight week.

Conforming and FHA mortgage rates in Pennsylvania moved sharply higher. After reaching an all-time low just two weeks ago, 30-year fixed mortgage rates are now at a 2-month high.

There were several big stories in the mortgage bond market last week. Each was bad for consumer mortgage rates.

The first big story was tied to Greece. As meetings continue between Eurozone leader and rhetoric heats up, it’s becoming increasingly clear that Greece will receive its next wave of debtor aid. The planned rescue of Greece is undoing the safe haven buying that characterized the mid-summer financial markets.

With investors more willing to take risks, mortgage bonds are selling off, and rates are rising.

The next big story was the release of the Federal Reserve’s September meeting minutes. The central bank’s meeting recap showed that the Fed considered additional stimulus beyond its Operation Twist, even as inflationary pressures are increasing. Because inflation lowers the value of outstanding mortgage bonds, rates climbed post-release.

Lastly, last week we learned that the U.S. consumer will not be deterred. Retail Sales grew 1.1 percent in September — much more than Wall Street’s expectation. This, too, caused a mortgage bond sell-off and led to a late-Friday surge in rates.

Markets should open worse this morning, pressuring rates higher yet again. However, there’s plenty of data this week for which rate shoppers should be watching :

Tuesday : Producer Price Index; Housing Market Index
Wednesday : Consumer Price Index; Housing Starts
Thursday : Existing Home Sales

In addition, there are 8 Fed speakers this week. Each can move markets.

Despite rising rates, mortgage rates remain low nationwide. If you’ve been shopping for a rate, it’s not too late to lock in. Talk to your loan officer and make a plan to get locked, and get closed.

Fed Minutes : A Fed Divided Reaches Compromise

Posted on October 14, 2011 by joeglez

Fed Minutes

Wednesday, the Federal Reserve released the minutes from its 2-day meeting September 20-21, 2011.

The release shows a divided Fed in disagreement about the current U.S. monetary policy. The group reached compromise for new economic stimulus, however, and maintained its commitment to accommodative interest rates.

Wall Street reacted tepidly to the minutes. Mortgage rates in Collegeville worsened slightly post-release.

The Fed Minutes gets less press than the FOMC’s post-meeting press release, but it’s every bit as important. Because it details the conversations that take place among voting and non-voting Fed members at FOMC meetings, the Fed Minutes is an inside-look at the debates and discussion that lead to new monetary policy.

As examples, here are some of the topics covered at the September FOMC meeting :

On growth : Economic growth was slow, but “did not suggest a contraction”
On housing : The market continues to be “depressed by weak demand”
On rates : The Fed Funds Rate will remain low until mid-2013

Then, with Fed members divided on whether the central bank should add new stimulus, it reached a compromise instead, launching the $400 billion “Operation Twist” program. Operation Twist is meant to lower longer-term interest rates, including mortgage rates.

Since Operation Twist began, mortgage rates are higher by nearly 0.375%.

Also noteworthy within the Fed Minutes was concern for an economic slowdown and how the Federal Reserve may react. According to the record, a slowdown may prompt the Fed to introduce its third round of qualitative easing, or QE3. An out-sized stimulus plan would likely lead rates higher.

Nothing will happen until the Fed’s next meeting, however. Chairman Ben Bernanke & Co meet next November 1-2 for a 2-day meeting..

Retail Sales Expected To Rise; Mortgage Rates Should Rise, Too

Posted on October 13, 2011 by joeglez

Retail Sales 2008-2011

The American Consumer is alive and well, it seems.

Friday morning, the Census Bureau will release its Retail Sales figures for September. The report is expected to show an increase in gross receipts for the 15th straight month with analysts predicting a 0.6 percent increase from August.

The projected increase represents the largest jump in Retail Sales in six months and would likely lead mortgage rates higher for buyers in King of Prussia and nationwide.

The connection between Retail Sales and mortgage rates is fairly straight-forward. Retail Sales are the majority component of “consumer spending” and consumer spending represents the majority of the U.S. economy — up to 70 percent, by some estimates.

And, as the economy goes, so go mortgage rates.

10 months ago, mortgage rates shot forward to start the year. This is because expectations were high for a strong economic rebound. Conforming and FHA rates crossed 5 percent at the time and were headed toward six.

By mid-April, though, it was clear that economic data was falling short of predictions. As a result, mortgage rates declined, kicking off the 2011 Refi Boom. Then, by August, on ongoing economic softness, mortgage rates in Pennsylvania fell further, making new all-time lows.

Expectations for a recovery have returned. Rates are now rising.

Last week’s strong jobs report sparked hope for the U.S. economy and investors have been voting with their dollars. Mortgage rates are now up 7 consecutive days and Friday’s Retail Sales report could cement the trend.

If you’re shopping mortgage rates today, there’s risk in “floating”. You may want to lock your rate before Friday’s Retail Sales report drives rates even higher.

The Retail Sales report will be released at 8:30 AM ET.

What’s Ahead For Mortgage Rates This Week : October 11, 2011

Posted on October 12, 2011 by joeglez

Unemployment Rate (2008-2011) Mortgage markets worsened last week as safe haven buying eased and demand for mortgage-backed bonds dropped. As in most weeks since March 2011, Greece and U.S. jobs dictated market direction.

Conforming mortgage rates in Pennsylvania rose last week, lifting rates off their all-time lows and causing consternation among the nation’s would-be buyers and refinancers.

Last week’s action may surprise you. After all, Freddie Mac’s weekly mortgage rate survey said average, 30-year fixed rate mortgages had dipped, dropping to 3.94% — the first time the average rate reported sub-4 percent.

A keen eye, however, revealed the another truth.

Yes, the average 30-year fixed rate mortgage did go sub-4 percent, but, in order to get those rates, applicants were suddenly required to pay 0.8 “discount points”. This is an increase of 0.1 discount points from the week prior, a change in loan cost thatr reduces the benefit of falling mortgage rates.

1 discount point is equal to 1 percent of your loan size.

All of that is history now, however,. Rates climbed each day last week and are now at their pre-Labor Day levels. The Refi Boom may not be over, but it may be stalled.

This week, mortgage rates may continue to climb. There is talk within the Eurozone that Germany and France will come to Greece’s aid, and that a plan will be solidified prior to November 3. This would boost stock markets at the expense of bonds, leading to higher mortgage rates.

In addition, last week’s strong employment data has renewed speculation that the U.S. economy is, in fact, healthy so analysts are now watching for Friday’s Retail Sales data.

Because consumer spending is an economic catalyst, if Retail Sales shows strength, mortgage rates should rise.

And, lastly, there is a 10-year Treasury auction Wednesday. Mortgage bonds don’t mirror the treasuries, but when demand is strong for treasuries, it’s often strong for mortgage-backed bonds, too. Therefore, a strong auction of government debt will help hold mortgage rates down.

A weak auction should lead rates higher.

Should I Refinance My Home?

Posted on October 11, 2011 by joeglez

With mortgage rates at all-time lows, you may be asking “Is now a good time to refinance?”. This short interview from NBC’s The Today Show offers good insight.

Refinancing a mortgage is about more than just “low rates”. For example, there are costs associated with giving a new mortgage and even with the average, 30-year fixed rate mortgage near 4 percent, the costs of a such a move can outweigh the benefits — both in the short- and long-term.

The video originally ran in September when mortgage rates averaged 4.09%. Rates are different today, but the offered advice remains relevant.

Some of the key points raised include :

The lowest rates come with the highest costs. Consider a slightly higher-rate option from your bank.
Falling home values may make it harder to qualify for a refinance in the future. Your best time to act may be now.
If you’re many years into a 30-year loan, you can consider switching to a 15-year mortgage to avoid “resetting” your term.

And, lastly, the interviewee makes a strong point that your refinance should save you enough money to make paying the closing costs “worth it”. Make sure the break-even point on your closing costs versus your monthly savings occurs within a reasonable time frame.

At 4 minutes, the The Today Show video is short, but dense with quality information. For follow-up on whether a refinance makes sense for your situation, be sure to talk with your loan officer.

Freddie Mac : Mortgage Rates Sub-4 Percent

Posted on October 7, 2011 by joeglez

Freddie Mac PMMS average rates

Mortgage rates have dropped past 4 percent.

For the first time in more than 40 years, data from Freddie Mac’s weekly Primary Mortgage Market Survey shows the average 30-year fixed rate mortgage falling below 4 percent, dropping to 3.94 percent nationwide. It’s the lowest average 30-year fixed reading in the survey’s history.

In addition, Freddie Mac shows the 15-year fixed and 5-year ARM making new all-time lows, too, falling to 3.26% and 2.96%, respectively.

It’s a great time to be shopping for a mortgage or buying a home in Phoenixville. Because mortgage rates are dropping, housing payments are dropping, too. As compared to 8 months ago, for every $100,000 borrowed, homeowners now pay $66 less principal + interest each month.

On a $300,000 mortgage, that’s $71,280 saved in 30 years.

Mortgage rates have been lower for several reasons, some of which include :

U.S. economic growth has been slower-than-expected
Uncertainty surrounds Greece and the Eurozone
The Federal Reserve’s “Operation Twist“

In general, demand for mortgage bonds has been high and that’s caused mortgage rates to fall. It should be noted, however, that although the 30-year fixed rate mortgage fell below 4 percent this week, the amount of discount points required to lock that rate rose by 10 basis points, or $100 per $100,000 borrowed.

Homeowners in Pennsylvania are paying bigger fees for these lower rates. If you plan to move within a few years, these fees may wipe out your low-rate savings.

As you shop for a mortgage, pay attention to more than just rates. Low rates are great, but not when they come with high costs. Talk to your loan officer for help with making a plan than works for you.