Monthly Archives: September 2015
Mortgage rates had another great day, with most lenders maintaining or improving upon yesterday’s 4-month lows. Given that we’d have to go back to May 8th, 2015 to see better rates, we’re very close to ‘5-month lows.’ In terms of top tier conventional 30yr fixed rate quotes, 3.875% remains most prevalent. A growing number of lenders are quoting 3.75% and only a few remain up at 4.0%. Not all borrowers will see a change in their quoted rate over the past few days, but in those cases, the closing costs would be lower or the lender credit would be higher.
Although there was a reasonable chance that we’d see increased volatility in the markets that underlie mortgage rates today, trading remained calm and positive. Stock prices and bond yields continued to diverge. This could have something to do with the way investors approached the end of the month and quarter. In other words, the volatility that was a risk today, could instead simply be waiting for the new month/quarter tomorrow. In any event, Friday’s big jobs report always has the potential to send rates quickly in either direction. While that does mean there could be further improvement for those willing to roll the dice on the economic data, it’s hard to argue against taking that risk off the table with rates near 5-month lows.
The New Residential Sales report, jointly produced by the U.S. Census Bureau and the Department of Housing and Urban Development also contained revised July sales numbers. These were raised to 522,000 from the 507,000 estimate originally provided. The revision put July in third place for sales over the last 12 months, exceeded only by August and by February 2015’s rate of 545,000 units.
On a non-seasonally adjusted basis the report estimates there were 45,000 newly constructed homes sold in August compared to 44,000 in July and 36,000 a year earlier.
The median price of a new home sold in August was $292,700 and the average price was $353,400. A year earlier the median and mean prices were $291,700 and $356,200 respectively.
At the end of August there were approximately 216,000 new homes available for sale, an estimated 4.7 month supply at the current rate of sales. Homes that sold during the month were on the market a median of 3.7 months. Two-thirds of the homes sold during August were either under construction or not yet started.
Sales in the Northeast were 24.1 percent higher than in July as well as in August 2014. The Midwest was the only region where sales declined for the month, down 9.1 percent, however they remained 15.4 percent higher than the previous August. Sales rose 7.4 percent month-over-month in the South and 27.6 percent year-over-year and in the West they were up 5.4 percent and 11.4 percent for the two periods.
It was a full week after a holiday foreshortened one and also the week in which the long awaited Federal Open Market Committee move to begin interest rate increases was widely anticipated to happen. Thus it was hard to know how much of the week’s ballooning mortgage application volume was attributable to Labor Day-delayed business activity and how much was generated by see-sawing interest rates after the Feds failed to act. In most cases the various volume indices rose by percentages about equal to their aggregate declines over the two prior holiday-impacted weeks.
The Mortgage Bankers Association (MBA) reports that the week ended September 18 saw a 13.9 percent increase in mortgage applications on a seasonally adjusted basis compared to the week ended September 11. On an unadjusted basis the MBA’s Market Composite Index was up 26 percent. The previous week’s data included an adjustment to account for the holiday.
The Refinance Index rose 18 percent and the refinance share of applications was 58.4 percent compared to 56.2 percent a week earlier. The seasonally adjusted Purchase Index increased 9 percent to its highest level since June. The unadjusted Purchase Index was up 20 percent week-over-week and was 27 percent higher than the same week in 2014.
The average contract interest rate for 30-year FRM with jumbo loan balances above $417,000 decreased to 3.99 percent, its lowest level since May 2015, from 4.04 percent, with points increasing to 0.36 from 0.26. The effective rate was down.
Rates for 30-year FRM backed by the FHA remained unchanged at 3.88 percent. Points decreased to 0.33 from 0.35, bringing the effective rate lower.
The average rate for 15-year FRM decreased by 2 basis points to 3.31 percent. Points jumped to 0.42 from 0.26 and the effective rate increased.
The share of applications that were for adjustable rate mortgages (ARMs) increased by 0.1 percentage points to 6.9 percent. The average interest rate for 5/1 ARMs dropped by 6 basis points to 2.95 percent, the lowest since May. Points increased to 0.58 from 0.36 but the effective rate was lower than a week earlier.
Mortgage rates couldn’t maintain last week’s impressive move lower following the Fed Announcement. At the time, rates were moving lower for ECONOMIC reasons. At the risk of oversimplifying, the Fed essentially conveyed a gloomy longer term outlook on the economy and this tends to put downward pressure on rates.
The economic outlook is only one of the factors that affect rates. Supply and demand in the bond market is also a consideration. Higher supply causes sellers to lower prices to compete. When prices fall, rates rise. This was the case today as bond markets coped with an unexpectedly large glut of supply. Mortgage rates were less affected than other sectors because the bonds that underlie mortgages weren’t the subject of the increased supply. That said, they are interconnected with other parts of the bond market, and thus share some of the pain.
Most lenders adjusted rate sheets higher before the end of the day. Even then, today’s rates are still much better than those seen on the morning before last week’s Fed Announcement. In other words, if you didn’t lock on Friday, today’s losses are small enough that you’ll still be benefiting from much of the post-Fed move.
Mortgage rates came back today after the Fed held steady at record-low policy rates. While the Fed Funds Rate doesn’t directly dictate mortgage rates, the two tend to correlate over time. At its most basic level, the Fed rate dictates the cost of short term money, which has ripple effects that carry through to longer term financing costs, like those associated with things like 10yr Treasury notes and mortgage rates.
Not only did the Fed forego a rate hike, they were also noticeably more downbeat about inflation and global growth/stability. It’s just as likely that these longer-term implications helped longer term rates (like mortgages) do as well as they did today.
All that having been said, the drop in rates merely brings them back in line with last week’s best levels. Considering they only rose from there due to Anxiety over today’s Fed meeting, it’s not unfair to say that rates are still in the same narrow range that’s been in effect for more than 2 months. The silver lining is that today could only be the start of a bigger move lower, though until that’s clearly the case, it always makes sense to guard against the possibility that the first move after a Fed Announcement is a head fake. With several lenders inching back into the high 3’s today for conventional 30yr fixed rate quotes, playing defense should be more enjoyable.
The 759,000 properties that rose out of negative equity during the second quarter leaves approximately 4.4 million properties, 8.7 percent of all mortgage properties underwater, that is the outstanding mortgage balance exceeds the value of the home. There were 5.1 million homes or 10.2 percent or mortgaged properties underwater at the end of the second quarter of 2014.
The national aggregate value of negative equity was $309.5 billion at the end of Q2 2015, down approximately$28.5 billion from the total in the first quarter. Negative equity declined from $350 billion a year earlier, a decrease of 11.6 percent. Borrower equity overall increased by $691 billion in Quarter Two of 2015.
In addition to the 4.4 million properties in negative equity another 9 million or 17.8 percent, have less than 20 percent equity (referred to as “under-equitied”), and 1.1 million, or 2.3 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of falling back into negative equity if home prices fall.
“Home price appreciation and foreclosure completions both reduce the number of homeowners with negative equity, the latter because most homeowners who lost homes through foreclosure had some level of negative equity,” said Frank Nothaft, chief economist for CoreLogic. “Between June 2014 and June 2015, the CoreLogic national Home Price Index (HPI) rose 5.6 percent and we reported the number of homes completing foreclosure proceedings exceeded one-half million. Both of these factors helped reduce the number of homeowners with negative equity by one million over the year ending in June.”
Nevada had the highest percentage of mortgaged residential properties in negative equity at 20.6 percent while Texas had the highest percentage in positive equity at 97.9 percent. Other states with high percentages of underwater borrowers were Florida (18.5 percent), Arizona (15.4 percent), Rhode Island (13.8 percent) and Illinois (13.1 percent). Those five states accounted for 31.7 percent of negative equity in the U.S. In addition to Texas, Alaska, Hawaii, Montana, and Colorado all had more than 96 percent of their mortgaged properties in positive territory.
Of the total $309 billion in negative equity, first liens without home equity loans, approximately 2.6 million properties, accounted for $168 billion, or 54 percent, of the aggregate negative equity. The average mortgage balance for this group of borrowers is $239,000 and the average underwater amount is $64,000.
The approximately 1.7 million underwater homeowners with both first and second liens accounted for $142 billion, or 46 percent of negative equity. The average mortgage balance for this group of borrowers is $303,000 and the average underwater amount is $82,000.
The bulk of positive equity for mortgaged properties is concentrated at the high end of the housing market. For example, 95 percent of homes valued at greater than $200,000 have equity, compared with 87 percent of homes valued at less than $200,000.
“For much of the country, the negative equity epidemic is lifting. The biggest reason for this improvement has been the relentless rise in home prices over the past three years which reflects increasing money flows into housing and a lack of housing stock in many markets,” said Anand Nallathambi, president and CEO of CoreLogic. “CoreLogic predicts home prices to rise an additional 4.7 percent over the next year, and if this happens, 800,000 homeowners could regain positive equity by July 2016.”
Real estate owned (REO) homes – ones that have gone through the foreclosure process and are owned by a bank or other institution – accounted for more than six percent of home sales in May 2015. While REO inventory is down significantly from its peak during the recent housing crisis, there continues to be affordable buying opportunities for homebuyers nationwide – especially with today’s low mortgage rates.
Buying an REO is a lot like buying any other home, but keeping these four tips in mind will help you be better prepared to succeed:
- Find a reputable agent who knows the market. Your strongest offer will be one that is comparable with other sales and listings in the neighborhood. Rely on a licensed real estate agent who is active in the neighborhoods you are considering – it’s even better if they have an office nearby. While banks and institutions can and will negotiate, they typically employ local pricing strategies with the goal of selling their homes at or near current fair market value. A good real estate agent can help you find a well-priced home that you can afford and also help you put in a solid offer.
- Get pre-approved. If you know you’ll need a mortgage to buy, it’s a good idea to get pre-approved by your lender. You should also understand how much you can afford before you fall in love with an REO home, especially since you are buying a home “as is.” While most banks and institutions make some necessary repairs, you may need to consider additional repair/renovation costs.
- Be ready. If you see a home that you’d like to buy, the sooner you can make the offer, the better. In many cases, you could be competing against investors and other interested parties and some are able to move fast, particularly with cash offers. The good news is that the market is transitioning back to one of traditional homebuyers, after being dominated by investors and cash sales.
- Do your homework. Most REO homes are sold “as is” so it’s important to do your due diligence once you’ve signed the contract. While it’s always a good idea to get a home inspection when you’re buying a home, it’s even more critical when buying an REO home since it may have been vacant for some time. You also need to ensure that the home does not contain any safety hazards or other unknown issues – your real estate agent can recommend the right inspections for the home you’re buying. Remember, you can always cancel the contract if you discover inspection issues.
Both MBS and Treasuries began the day near yesterday’s best levels, and both promptly moved to yesterday’s weakest levels after the ADP data. Factory Orders were also much weaker than expected at 10am, especially when the transportation sector was excluded (-0.6 vs +0.6 last month). Even then, bonds continued to push the weaker limits of the recent range.
Judging by the market’s reaction to the weaker data, we’re left to assume that the burden of proof lies on side of the argument AGAINST raising rates. In other words, it looks like markets are taking anything close to consensus as “good enough” to keep the Fed in a position to hike in 2 weeks.
In some cases, that will merely mean higher closing costs for yesterday’s prevailing rates. In other cases, borrowers could see rates move up by .125%. The most prevalent conventional 30yr fixed rate for top tier scenarios remains 4.0%, with slightly fewer lenders offering 3.875% today vs Friday.
The rest of the week stands the chance to be exceptionally volatile. The Fed placed a lot of emphasis on the next 2 weeks of economic data between now and their September meeting. The current week is certainly the biggest in terms of the scheduled data. Even though Fed rates don’t dictate mortgage rates, any major changes in the expectations for Fed action will affect the entire market.