Home affordability took a slight hit this week after the Federal Reserve’s release of its August 10 meeting minutes.
The “Fed Minutes” is a lengthy, detailed recap of a Federal Open Market Committee meeting, not unlike the minutes published after a corporate conference, or condo association gathering. The Federal Reserve publishes its meeting minutes 3 weeks after a FOMC get-together.
The minutes are lengthy, too.
At 6,181 words, August’s Fed Minutes is thick with data about the economy, its current threats, and its deeper strengths. The minutes also recount the conversations that, ultimately, shape our nation’s monetary policy.
It’s for this reason that mortgage rates are rising. Wall Street didn’t see much from the Fed that warranted otherwise.
Among the Fed’s observations from its minutes:
- On the economy : The recession was deeper than previously believed
- On jobs : Private employment is expanding slowly
- On housing : The market was “quite soft” in June
Now, none of this was considered “news”, per se. If anything, investors were expecting for harsher words from the Fed; a bleaker outlook for the economy. And, because they didn’t get it, monies moved to stocks and mortgage bonds lost.
That caused mortgage rates to rise.
The Fed meets 8 times annually. Its next meeting is scheduled for September 21, 2010. Until then, mortgage rates should remain low and home affordability should remain high. There will be ups-and-downs from day-to-day, but overall, the market is favorable.
September 2nd, 2010 in
FOMC | tags:
FOMC,Fed Minutes |
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According to the Standard & Poors Case-Shiller Index, home values rose 5 percent in June versus the month prior, and 4 percent from a year earlier. It’s the 16th consecutive month in which Case-Shiller reported an increase in home values and the third straight month of outstanding results.
That said, homeowners and home buyers in Baltimore would do well to temper Case-Shiller enthusiasm. The June figures are issued on 60-day delay and, over the last 60 days, housing data has been lackluster at best.
Stories like these highlight a key weakness of the Case-Shiller Index — it’s out of date as soon as it’s published. Because of this, the Case-Shiller Index relevance to everyday Americans is muted. People don’t buy homes in the “60 days ago” real estate market, after all.
June is ancient real estate history.
However, the Case-Shiller Index does have its place. As the most widely-followed, private-sector housing tracker, the index is used to help make policy decisions and to shape Wall Street’s expectations of the economy. This means that a strong Case-Shiller reading can cause mortgage rates to rise, and a weak Case-Shiller reading can cause rates to fall.
Tuesday, mortgage rates fell.
Mortgage rates are low right now but pinning them down this week could be a challenge. As Labor Day Weekend nears and Wall Streeters take their head-start on the holiday, trading volume will fall, which will cause mortgage rates in MD to get jumpy.
As mortgage rates change, so does the long-term cost of owning a home. Every 1/8 percent adjustment changes a household budget.
Meanwhile, the relationship between “vacation days” and mortgage rate volatility is an interesting one; based more in scarcity than market fundamentals.
Rates tend to get volatile near holidays because of two inter-related facts:
- Conforming mortgage rates are based on the price of mortgage-backed bonds
- Mortgage-backed bonds can’t trade without a buyer and a seller at a specific price
So, as the week progresses and more traders leave for their respective “extended” 3-day weekends, there’s fewer buyers and sellers left on Wall Street to connect for a trade. As a result, mortgage bond prices move across larger gaps than on a “normal” day which, in turn, translates into faster, larger changes in rates.
This phenomenon can be exaggerated during periods of economic uncertainty — like what we’re in now — and, furthermore, there’s a bevy of important data set for release this week including the FOMC Minutes, inflation data, and August jobs figures.
In other words, rates would have been volatile without the vacation week. The presence of Labor Day just piles on.
Mortgage rates may rise this week, or they may fall. Either way, if you have a chance to lock something favorable and within your budget, consider doing it. Rates are at all-time lows and likely won’t last.
Mortgage markets improved last week despite a major mortgage bond sell-off Friday afternoon. Prior to the jump, conforming mortgage rates had cut new, all-time lows by Thursday, only to lose up to 0.250 percent on the last day of the week.
Meanwhile, the same type of news that drove rates lower Monday through Thursday also contributed to rates rising Friday — revised projections for the U.S. economy.
Early in the week, “bad” news piled on which, in turn, lowered expectations for the economy and pushed mortgage rates down:
Then, on Friday, two events revised the market’s expectations back higher:
When Chairman Bernanke talks, markets listen. His comments about the U.S. economy helped fuel that late-Friday surge in mortgage rates last week.
This week, the momentum could continue — depending on the data.
There’s a lot for markets to digest this week including key inflation figures from the government; home value data from Case-Shiller; Fed Minutes from the Federal Reserve; and, the always-important jobs report due Friday.
Since April, mortgage rates have been on a downward trajectory and that may continue this week. Or, it may not. If you own a home and haven’t talked to your loan officer about a refinance, now is as good a time as any — rates are at historic lows and could rebound at any time.
Last June, mortgage rates rose 1.125% in 10 days. Under the right circumstances, it could happen again.
Sometimes, you need to look deeper than the headlines to get the news that matters. This basic truth’s latest example comes from the July Housing Starts data, as published by the U.S. Census Bureau.
According to the newspapers, Housing Starts improved last month:
- US Housing Starts Make Modest Rebound (FT)
- Housing Starts Rise Slightly (MoneyWatch)
- Housing Starts Tick Higher In July (MarketWatch)
However, these stories are speaking in terms of all housing starts — not just the single-family ones. This is a major point of difference for home buyers in Baltimore because the most people don’t buy the multi-unit homes and apartment buildings that’s also a part of the Housing Starts data.
The overwhelming majority of buyers buy single-family homes and in July, as in the previous 3 months, the number of single-family housing starts fell.
In fact, single-family housing starts are down by nearly 25 percent since April and are now at their lowest levels since May 2009.
This is a much different message from the headlines above.
It’s not surprising that single-family housing starts are down; builder confidence is down as well and the two metrics tend to trend in the same direction.
Furthermore, building permits for single-family homes fell in July, too.
As a home buyer, the drop in Housing Starts should help reduce housing inventory in the months ahead. This may lead home prices to rise because home values are based on supply and demand. For home sellers, falling starts should help reduce competition for buyers.
Each real estate market is unique and supply levels will vary from ZIP code to ZIP code. For up-to-the-minute inventory levels, make sure to talk with your real estate agent.
Home builder confidence in the newly-built, single-family housing market is down for the third straight month this month.
After reaching a 3-year high just 90 days ago, the National Association of Homebuilders’ Housing Market Index is now at a multi-year low. It’s since dropped by almost half.
As an economic indicator, the HMI’s goal is to “take the pulse of the single-family housing market”. It surveys home builders across the country and asks them to report on 3 facets of their business:
- How are market conditions today?
- How do market conditions look 6 months from now?
- How is the prospective traffic of new buyers for new homes?
Responses are then collated, weighted, and presented as the Housing Market Index.
The August HMI reading of 13 is the lowest since March 2009.
Not surprisingly, the main reasons why HMI is down echo the main reasons why consumer confidence is down. Jobs growth continues to be weak; credit guidelines remain restrictive; and, home values are recovering slowly, pressured by distressed properties.
Builders report watching foot traffic stagnate and most likely won’t want to be stuck with excess inventory into the fall and winter months. For home buyers in Baltimore , drops in builder confidence like this can be an excellent negotiation tool.
Builders may be more likely to offer incentives and/or price reductions into an uncertain economy, as compared to a strong one. Furthermore, weakness in home building indirectly drags mortgage rates lower.
This one-two combination can make for cheaper homes with cheaper monthly payments.
Mortgage markets worsened last week, putting a pause on the mortgage rate rally that dates to mid-April. Mortgage rates rose across MD last week and home affordability suffered.
The Refi Boom remains in full effect, but rates are not as dazzling as they were a week ago.
It’s somewhat strange that mortgage rates rose last week given the heavy dose of negative-bending news.
Mortgage rates often to fall on such news, but last week, they rose. The biggest reason was weak demand on a new 30-year bond issuance from the government. In turn, that weakness spilled over into mortgage bonds, which pushed rates up.
This week, mortgage rates could rise or fall — it depends on how new data influences market sentiment.
- Monday : Home builder confidence survey
- Tuesday : Housing Starts and Building Permits; Producer Price Index
- Thursday : Jobless claims; 2 Fed members make speeches
Keep a close eye on the housing-related data early in the week. It’s widely believed that housing will lead the economy forward so a rebound in home builder confidence, or a jump in building permits, for example, should push rates even higher. Weakness
In the meanwhile, if you haven’t spoken with your loan officer about a refinance, consider reaching out this week. Rates are lower than they’ve ever been in history and more people are getting financing than the news would have you believe. You can’t know until you ask so make that call today.
For the second time this year, the FHA is modifying mortgage insurance.
Beginning with FHA case numbers issued on or after October 4, 2010, the FHA is changing its upfront and annual mortgage insurance premium structure.
Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:
- Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
- Annual MIP increases to 0.850% of the amount borrowed from 0.500%
For homeowners in Baltimore and everywhere else , this switch in MIP decreases the upfront cost of an FHA-insured mortgage, but increases the loan’s long-term costs.
Using a $100,000 mortgage as an example, upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.
The update is a huge win for the FHA whose reserve funds are self-proclaimed to be “perilously low”. The extra monies should help recapitalize and stabilize the government group.
The FHA is on pace to back 1.7 million loans this year.
For the majority of refinancing FHA homeowners and home buyers, the MIP change is neither good nor bad — the borrowing landscape will just looks a bit different. Yes, loans will cost more to carry each month, but also they’ll be less expensive to procure. It’s a trade-off and you can apply math formulas to solve for the best time to apply FHA.
It may be wise to get your FHA case number before October 4, for example, depending on your time frame in the home and the expected life of the mortgage. Or, it may be better to wait until after October 4 to apply.
If you’re unsure of how the new FHA mortgage premiums will impact your mortgage, be sure to call or email your loan officer for help.
NOTE : The FHA originally announced an implementation date of September 7. It was subsequently amended to October 4, 2010.
August 13th, 2010 in
FHA Mortgages | tags:
FHA,MIP |
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Foreclosure filings rose 4 percent nationwide last month versus June, according to foreclosure-tracking firm RealtyTrac.com. For the 17th straight month, total filings topped 300,000.
A foreclosure filing is defined as default notice, scheduled auction, or bank repossession.
As with most months, just a handful of states dominated foreclosure activity nationwide.
- California : 14.9 percent of all activity
- Florida : 11.6 percent of all activity
- Arizona : 6.4 percent of all activity
- Michigan : 6.2 percent of all activity
- Georgia : 6.1 percent of all activity
- Texas : 4.9 percent of all activity
Together, these 6 states represent just 30 percent of the overall U.S. population.
The other 44 states (and Washington D.C.) were home to the remaining 49.0%.
Despite this imbalance, though, in all markets, foreclosures and REO are making a profound impact on pricing and product. “Distressed” homes now represent 32 percent of the overall resale market nationwide, according to the National Association of Realtors®.
Buying a foreclosed home can make for a terrific “deal”, but buying in the REO market is decidedly different from buying a non-foreclosed property.
As 3 examples:
- Buying bank-owned homes can take 120 days to close.
- Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held.
- Bank-owned homes are often sold “as is”. There may be defects that render the homes mortgage-ineligible.
If you have an interest in buying REO, consider talking with a real estate agent first. Even the negotiation process is different as compared to a non-distressed sale. It helps to have an experienced professional representing your interests.
The Federal Open Market Committee holds a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.
The FOMC is the government’s monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate.
The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.
It’s the lowest Fed Funds Rate in history.
Because the Fed Funds Rate is near zero, it’s accommodative of economic growth, spurring businesses and consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.
The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant. It’s expect that the Fed will reiterate that message in today’s post-meeting press release.
However, just because the Fed Funds Rate won’t be changing today, that doesn’t mean that mortgage rates won’t. Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.
Mortgage rates in MD tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.
When Ben Bernanke & Co. speak, Wall Street listens.
The Fed’s press release today will be dissected and analyzed. Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.
Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock before 2:15 PM ET today.
