What a volatile market means for mortgage rates

6

The U.S. economy added 204,000 jobs in October, widely exceeding estimates of 125,000. The unemployment rate rose by 0.1 percentage point to 7.3%, matching forecasts. While this is GREAT news for our sluggish economy, it is unfortunate news for the those of you in the process of buying a home, are not locked in, and trying to protecting your interest rate. Also adding insult to injury, many traders now believe because of this increase the Federal Reserve Tapering of mortgage backed securities is going to happen sooner rather than later, resulting in further increased rates.

This morning so far we have lost 106 basis points since yesterday. What this means dollar wise for potential home buyers is if you want to borrow $600k (average loan size in CA) yesterday you would be looking at a rate somewhere around 4.25% and a monthly payment of $2,951.64. That same loan today would have a rate around 4.5% and a monthly payment of $3,040.11. You might be thinking this is only $88.47 more a month, however in one year you will spend $1,061.64.

So you just lost some money, and it was only a .25% this time but the forecast from the Mortgage Bankers association think rates are going to be over 5% (they were just there a few months ago) in 2014. This funny money cannot sustain forever and if you were to tell someone back in the 80′s that you were going to get a 30 year fixed in the 4% range they would think you were from another planet. So now let’s take the same $600,000 with today’s rate around 4.5% ($3,040.11) and $600,000 at 5.125% *2014 MBA forecast* your monthly payment would be ($3,266.92) = $226.81 a month more or $2,721.72 annually. So now that you just lost your discretionary income for that new car payment you had your eye on, or that trip to Hawaii do I have your attention?

Hallelujah moment, introducing the Lock and Shop program that I have been talking about almost daily for the last 6 months. We just closed a loan with a 30 year fixed rate in the 3% range this week, and rates have not been in the 3% range since last spring. Don’t you want to be the one closing in the 4% range while everyone else is stuck in the 5% range? Well here is your chance.
Guess what it gets better if rates go down! When you lock your rate you get an option to float down to current market (that is if rates are improved).

Lock and Shop

Key advantages…

Your loan will be fully underwritten when making offers (this will help tremendously getting your offer accepted in a low inventory market *cough, cough*).

You can close the transaction faster (compete with all cash buyers).

And, you are protected from the VOLATILITY!

Please feel free to call me if you or anyone you know could benefit from this program (hint anyone buying a home right now, thinking about buying a home, or just want to know their options).

If you are still reading this I appreciate your continued support and hope you have a wonderful weekend!

Cheers!!

Chris Black
Chris.Black@imortgage.com
NMLS ID 275073

DIRECT 949 705 0567
OFFICE 949 705 0550
FAX 877 315 2605
CELL 925 286 7681

Rates, terms, and availability of programs are subject to change without notice.
imortgage is licensed by the CA Department of Business Oversight, CRMLA 4131040. NMLS ID 174457.
Equal Housing Opportunity. All rights reserved. 2013.

What a volatile market means for mortgage rates

6

The U.S. economy added 204,000 jobs in October, widely exceeding estimates of 125,000. The unemployment rate rose by 0.1 percentage point to 7.3%, matching forecasts. While this is GREAT news for our sluggish economy, it is unfortunate news for the those of you in the process of buying a home, are not locked in, and trying to protecting your interest rate. Also adding insult to injury, many traders now believe because of this increase the Federal Reserve Tapering of mortgage backed securities is going to happen sooner rather than later, resulting in further increased rates.

This morning so far we have lost 106 basis points since yesterday. What this means dollar wise for potential home buyers is if you want to borrow $600k (average loan size in CA) yesterday you would be looking at a rate somewhere around 4.25% and a monthly payment of $2,951.64. That same loan today would have a rate around 4.5% and a monthly payment of $3,040.11. You might be thinking this is only $88.47 more a month, however in one year you will spend $1,061.64.

So you just lost some money, and it was only a .25% this time but the forecast from the Mortgage Bankers association think rates are going to be over 5% (they were just there a few months ago) in 2014. This funny money cannot sustain forever and if you were to tell someone back in the 80′s that you were going to get a 30 year fixed in the 4% range they would think you were from another planet. So now let’s take the same $600,000 with today’s rate around 4.5% ($3,040.11) and $600,000 at 5.125% *2014 MBA forecast* your monthly payment would be ($3,266.92) = $226.81 a month more or $2,721.72 annually. So now that you just lost your discretionary income for that new car payment you had your eye on, or that trip to Hawaii do I have your attention?

Hallelujah moment, introducing the Lock and Shop program that I have been talking about almost daily for the last 6 months. We just closed a loan with a 30 year fixed rate in the 3% range this week, and rates have not been in the 3% range since last spring. Don’t you want to be the one closing in the 4% range while everyone else is stuck in the 5% range? Well here is your chance.
Guess what it gets better if rates go down! When you lock your rate you get an option to float down to current market (that is if rates are improved).

 

Key advantages…

Your loan will be fully underwritten when making offers (this will help tremendously getting your offer accepted in a low inventory market *cough, cough*).

You can close the transaction faster (compete with all cash buyers).

And, you are protected from the VOLATILITY!

Please feel free to call me if you or anyone you know could benefit from this program (hint anyone buying a home right now, thinking about buying a home, or just want to know their options).

If you are still reading this I appreciate your continued support and hope you have a wonderful weekend!

Cheers!!

Chris Black
Chris.Black@imortgage.com
NMLS ID 275073

DIRECT 949 705 0567
OFFICE 949 705 0550
FAX 877 315 2605
CELL 925 286 7681

Rates, terms, and availability of programs are subject to change without notice.
imortgage is licensed by the CA Department of Business Oversight, CRMLA 4131040. NMLS ID 174457.
Equal Housing Opportunity. All rights reserved. 2013.

Time to buy Southern California real estate — if you can

home dream

Real estate agent Alan Castillo recently listed a client’s fixer-upper in Granada Hills for $278,250.

It was only 1,600 square feet — but it drew 128 offers, most of them in cash.

The final selling price, after all of 10 days on the market? $377,872.

“I was very surprised,” said Castillo, the owner of Financing Realty Center Inc. in Granada Hills, who has been in the business for 20 years.

“I didn’t think I’d get that many offers. This was overwhelming.”

While that particular transaction may be an extreme example, it reflects a Southern California housing market that is emerging from the late 2000s crash.

For 2013, real estate experts say it’s time to get ready for a new normal, or, perhaps more accurately, a new abnormal.

Interest rates are at historic lows, prices are moderate and demand is surging. But at the same time, banks are keeping a tight rein on credit, and homeowners — especially those who bought at higher prices a few years back — are still reluctant to sell. Plus investors are swooping into the market with all-cash offers that often pre-empt first-time homebuyers with moderate credit.

Those factors combine to make it a great time to buy — and a more complicated, difficult time to do so.

With rates so low and the housing bubble in the rearview mirror, home prices are starting to show some signs of recovery.

Last year was “the long-awaited transition year for California and locally,” said Robert Kleinhenz, chief economist at the Los Angeles County Economic Development Corp. “We can’t say that the housing market has recovered fully. I think that is a couple years off. But this is the turning point.

“We’ve seen a year of at least average, if not above average, sales. That is one indication that the housing market is in recovery.”

The median price of a Southern California home sold from July to September was nearly 11 percent higher than the same quarter last year.

The number of homes sold for that period also rose by about 11 percent.

Fourth quarter sales numbers, due out this week, are expected to continue the improving trend.

However, any improvement is tempered by the fact that the region’s housing market is rising from such a low base line.

For example, the median price in the 2012 third quarter, $310,000, is still lower than the third-quarter median of 2003, when it stood at $325,000.

And while Southern California sales have started to improve, with 62,304 sales in the third quarter of 2012, that is still below the level in the first quarter of 2003, which saw 72,123 sales.

Still, the improving sales trend doesn’t mean the

boom times have entirely returned. Experts vary on their projections for Southern California this year, but most are looking at only moderate growth.

“Everybody thinks, oh, the housing market is turning around. But it’s turning around because the inventory is lower,” said Warren Snyder, who co-owns Carriage Realty & American Broker Loans in Rolling Hills Estates. “The short inventory count is causing people to pay more for the house. It’s supply and demand.”

Absent some economic shock, like a boom or bust in the jobs market, Gary Painter, director of research at the USC Lusk Center for Real Estate, expects the Los Angeles region to see flat to moderate growth in home values, with maybe a 3 percent annual increase.

The California Association of Realtors is more optimistic, expecting prices to improve 5.7 percent this year, with sales to rise by 1.3 percent.

But others like Bruce Norris, a prominent investor in Riverside who predicted the housing bubble and sold off his holdings a year before the crash, now thinks market prices are primed to shoot up by 20 percent this year because of tight supply and growing demand.
Unhappy house hunting
One of those struggling to find a home is Arthur Hamamdjian of Valencia, who spent a recent Sunday afternoon shopping for a four-bedroom, single-family home — with no luck.

“I’m renting now,” the 40-year-old said. “I have three children and my father living with me, so I really need four bedrooms, but I’m having trouble finding anything. The market is tight.”

Hamamdjian dropped in at an open house for a three-bedroom home in Valencia that was priced at $425,000, but he didn’t like the looks or the size of it.

“I keep hearing that there are a lot of foreclosures on the market, but I don’t see them,” he said. “I’ve looked around and I just don’t see them.”

Real estate agent Jamie Morton, who hosted the open house, said about 30 people came through that Sunday to look at the home.

“I’ve had more than normal today,” said Morton, of Realty Executives in Valencia. “Usually it’s about 10 to 20 people. It’s really a seller’smarket now because there isn’t much out there. We’re getting 10 to 20 offers on some of these homes, and they’re bidding them up $10,000 to $20,000 over the list price.”

Morton said a large percentage of the buyers she has seen are investors who move in with all-cash offers.

Those investors make competition over homes even more difficult for regular buyers.

The lack of sufficient inventory has several causes. Owners are delaying putting their home on the market in hopes of values rising more. But those owners’ attitudes about selling could change as signs of the housing recovery increase confidence.

“Now that we’ve observed house prices being constant or going up for the last six months, (sellers are) going to be more confident,” said Painter, the USC research director.

In addition, investors who bought foreclosed homes are renting them out until they can sell for a big enough profit. This is an attractive option for investors since rents have been rising.

And then there’s the “shadow inventory,” which refers to homes that could be on the market, but aren’t. Experts say banks may be holding back on selling foreclosed homes to avoid incurring losses and to prevent flooding the market with homes for sale and driving prices back down again.
Some renters encouraged
With historically low interest rates of around 3.4 percent and most homes a bargain compared with a few years ago, some renters see an opportunity to become owners.

That is the case with Maria Naranjo of Sylmar.

“We’ve been renting for 12 years,” Naranjo said. “We were talking to a Realtor who said we could rent a three-bedroom home for about $2,200 a month. But he said we could also buy a home for around $2,100 a month, so it would be cheaper to buy.”

However, many renters remain unable to enter the ranks of homeowners because they can’t secure a loan.

Kyle Kazan, a major regional rental property owner, describes those people as being stuck in “apartment jail.”

“It’s keeping a number of our tenants as tenants because they can’t get a loan,” said Kazan, CEO of Long Beach-based Beach Front Real Estate Services, which owns and manages 6,000 rental units throughout Southern California.

That reality has helped push rents up.

“We have plenty of buildings that are full, which wasn’t the case two years ago,” Kazan said. “And at many of our properties, we’ve raised rents in 2012, and we would not have dared to have done that in 2010.”
The credit crunch
The difficulty in securing a mortgage comes after years in which home loans seemed to be handed out like candy.

Less than a decade ago, as the housing bubble expanded, banks paid less attention to the quality of a buyer’s credit or ability to make monthly payments since home values were increasing so quickly. The assumption was that if the buyer could no longer pay, the bank would make up its investment by selling the property for more than the value of the mortgage.

Because of the housing bust, banks went to the other extreme, focusing almost exclusively on a buyer’s ability to pay.

“We went from a time when they didn’t care about the quality of the credit because the property was going to be worth something, to a period when credit was everything,” USC’s Painter said. “I haven’t seen evidence of a middle ground yet, but that’s my expectation.”

John Miller, president of CityLights Financial, an Agoura Hills-based lender, said he is seeing some of the tightest credit standards in decades.

He referred to formerly easy credit as “pulse loans” — if you had a pulse, you got a loan.

“You can have an 800 FICO score and not get a loan. We are back to 1970s underwriting,” said Miller, who has been in the business for 41 years. “You’ve got to give me your W-2s, your 1040s and your pay stubs.”

One of the major reasons people with a high credit score are turned down is that their debt-to-income ratio is too high; the monthly mortgage payment eats up too much of their income.

“They want to make sure you have the ability to pay, and they are very standoffish on lending money,” Miller said of banks.

Even if a buyer qualifies for a home loan, the process takes much longer than before, serving as another drag on the housing market.

“If you’ve got all your ducks in a row, you could get a loan closed in 30 to 45 days before this recession,” Snyder said.

“Now if you were to get a loan closed in 45 days it would be a miracle,” he said.

Snyder said an average time to complete a mortgage is two to three months if things go smoothly.
The future
After the housing bubble and bust, the local real estate market seems to be in a quiet period with no major moves in any direction.

The region could remain this way for an extended period. Or this may just be the quiet before the storm. After all, the housing roller coaster is bound to return. New Home Sales

5 signs to watch for housing in 2013

home dreamBuying gets less affordable

The bust of the housing market five years ago created one of the cheapest times to buy. Across many parts of the U.S., even in some of the priciest markets including New York and Honolulu, it has become cheaper to purchase a home than rent, according to Trulia’s Rent vs Buy report. Record-low interest rates on mortgages have also made buying more affordable.

That’s changing, however. In 2012, prices hit bottom. Finally! While that tells us the market is healing, it could also mean buying will be less affordable in 2013. Asking prices for homes for sale rose 3.8% in November from a year earlier — one of the biggest gains since the housing market crashed in 2007. While rents nationwide are still rising faster than home prices, the trend has reversed in 14 of Trulia’s 25 biggest rental markets including Denver, Seattle and San Francisco.

Watch for rising jobs, not rising prices

Most of us watched home prices to gauge the health of the housing market. That was so 2012, however. Just because prices are rising doesn’t necessarily mean the industry is doing any better. Next year, a better pulse of the market will be the rate of jobs growth, says Jed Kolko, chief economist with Trulia.

Cities like Las Vegas, Miami and Phoenix have seen home prices surge, but it’s uncertain how long that could last. Prices have risen, partly because they fell so much and also because many homes are still undergoing the foreclosure process. They’re also cities in states with some of the highest rates of unemployment, which ties closely to how well people will be positioned to buy.

Delinquencies fall (very slowly)

The troubled housing market was marked by record foreclosures, which is why economists closely watch the rate at which homeowners are late on their payments — they’re a precursor to foreclosures. Nationwide, the delinquency rate on mortgages peaked during the last three months of 2009 at 6.89%, after rising 12 quarters in a row from 1.49% in 2006.

As of the latest quarter, the delinquency rate dropped to 5.41%. And for 2013, it’s expected to continue dropping — albeit, slowly to around 2%. Much of the late payments are made up of existing borrowers more than a year late on their payments, as opposed to new borrowers following stricter lending standards. Some of the biggest declines are expected in Nevada, Minnesota, California and Arizona.

Record-low interest rates

Cheap money has certainly helped the housing market recover. For the past few years, average interest rates on 30-year-fixed mortgages fell to new lows. With December remaining, rates this year averaged 3.68%, lower than the average 4.45% for 2011 and 4.69% in 2010.

To be sure, rates can’t stay low forever. Which is why some have worried a return to higher rates could push home prices down again. But if the Federal Reserve has its way, that won’t happen any time soon. In an unusual move during its last meeting of the year, the central bank’s policy-making board decided to leave rates untouched until the unemployment rate falls to 6.5% so long as inflation stays low. Which means, according to the Fed’s predictions, rates will likely stay low into 2015.

First-time buyers

The housing market’s rebound was hard to miss this year, but not everyone rode the wave to better days. Missing werefirst-time buyers – many of whom were either jobless or couldn’t get a home loan or both.

Those who tend to be first-time buyers, 25 to 34-year-olds, suffered far worse joblessness than most other adults in the years following the recession. A year ago, unemployment among young workers was 9.2% versus 8.7% for all adults. The gap has narrowed recently. In November, unemployment among young workers had fallen to 7.9% versus 7.7% for all adults.

If the trend continues, this might help bring first-time buyers back into the market.

Short Sale Debt Relief Extended Through 2013

Rest easy if you’re trying to short sell your house – you won’t face a massive tax bill as a result if you complete the sale in 2013.

As part of the fiscal cliff deal, the Mortgage Debt Forgiveness Act of 2007 has been extended for one more year. Under normal circumstances, debt forgiven as a result of a short sale or mortgage modification would count as income for tax purposes. For instance, if somebody owes $250,000 on their mortgage and their lenders agrees to a $200,000 short sale, $50,000 in debt is forgiven. This would have been taxable without an extension of the law.

According to RealtyTrac data, short sales made up 22% of all residential short sales in the third quarter of 2012, a 17% year-over-year increase. A failure to reach an extension to this debt forgiveness law would have been deleterious to the nascent housing recovery.

At the end of the day, short sales are an important mechanism to clear negative equity from the housing market. Although not totally benign, they tend to have less negative impact than foreclosure (which is probably the most destructive market clearing tool).

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House-Sinking

Mortgage Refinancing: Borrowers See Big Payoff in 3rd Quarter

Many consumers may have sought to refinance their existing home loans in the last several years as a means of making their monthly payments more affordable, and it seems their efforts have largely paid off.

During the third quarter, 83 percent of consumers who took the time to refinance their home loans either maintained the same loan amount or were able to slash their principals by paying more money into the balance, the report said. In all, about 29 percent of all borrowers were able to cut their obligations with larger payments, while the other 54 percent kept theirs the same. The 83 percent total was the highest seen in some time, and only slightly below the all-time record of 85 percent in the final quarter of 2011.

“On average, borrowers who refinanced reduced their interest rate by about 1.7 percentage points,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “On a $200,000 loan, that translates into saving about $3,500 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during September, with 30-year product averaging 3.5 percent and 15-year averaging 2.8 percent that month, according to our Primary Mortgage Market Survey.”

That 1.7-point drop in rates is equal to a decline of about 31 percent, and marks the largest decline seen in the 27 years Freddie Mac has been conducting such analysis, the report said. Freddie also found that of all the mortgage applications submitted to lenders in the third quarter, 82 percent were for refinances. That matched the all-time high, observed in the fourth quarter of 2010.

Meanwhile, for loans with terms altered through the Home Affordable Refinance Program, the value of those properties declined 31 percent from when the mortgage was originated, the report said. On average, those loans came with a median age of 5.6 years, and borrowers received rate reductions averaging about two percentage points.

Consumers who seek to refinance their home loans can save hundreds or even thousands of dollars per month on their payments because rates are hovering near all-time lows, and have been for some time now. Many may further be encouraged to do so thanks to slowly rising property values, which brought many underwater borrowers back to the right side of their obligations in the last several months.

Home Prices Rise, Spurred By Low Interest Rates

Home prices rose again in July as builders reported rising orders. The S&P/Case-Shiller showed an increase of 1.6 percent for the month in its 20-city home-price index.

Average home prices increased by 1.5 percent for the 10-City Composite from June.

Last month, Case-Shiller’s three indices showed positive annual growth for the first time since the summer of 2010. All three composites of the Case-Shiller indices — the national, 10- and 20-city composites — were up for June and July from a year ago.

Record low interest rates, pushed down by the Federal Reserve, are encouraging more home buyers to finally purchase after the housing bubble burst five years ago. Earlier this month the nation’s central bank announced the federal funds rate, the rate at which banks borrow from each other, would remain near zero at least through mid-2015 due to the struggling unemployment situation in the country.

On Thursday, Freddie Mac reported the 30-year fixed rate mortgage was 3.49 percent, down from 3.55 percent the previous week and 4.09 percent from a year ago.

In its analysis released Tuesday morning, the S&P/Case-Shiller report showed Dallas and Washington, D.C. had no change in their annual rates while rates for Cleveland, Detroit and New York worsened in July.

“The news on home prices in this report confirm recent good news about housing,” said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Single family housing starts are well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing. All in all, we are more optimistic about housing. Upbeat trends continue. For the third time in a row, all 20 cities and both Composites had monthly gains. Stronger housing numbers are a positive factor for other measures including consumer confidence.”

From online real estate analytics firm Zillow, Chief Economist Stan Humphries said, “July shows another strong month of appreciation for Case-Shiller albeit down slightly from June’s revised monthly pace and somewhat lower than our expectations. The indices have, however, still yielded a better annual comparison than last month, reflecting organic growth in the housing market, which further confirms what we’ve been seeing over the last few months in other data: the housing market is in recovery mode. Given the more recent August Zillow Home Value Index was down slightly month-over-month, we anticipate Case-Shiller’s monthly appreciation to slow even more substantially in August.”