Bob's Coto Blog

What's Ahead For Mortgage Rates This Week : December 14, 2009

Bob Phillips (Realty Executives) — Mon, 14 Dec 2009 00:44:43 -0600

Mortgage markets worsened for a second consecutive week last week amid debt default concerns and stronger-than-expected economic data. Dollars left the bond market and mortgage rates suffered.

After re-reaching an all-time low December 1, mortgage rates have since rolled back to mid-November levels.

Rates are still low right now. Just not as low.

And meanwhile, last week's big story -- the one that should concern mortgage applicants between now and early-2010 -- is the story of Retail Sales.

Last week, a government report showed that American consumers are spending more this holiday season than was expected. The Retail Sales data implies that consumers are feeling more confident in themselves, and in the economy overall.

This is one of the last remaining pieces in the economic recovery puzzle. Job growth, of course, is another, and both will be in focus this week as the Federal Open Market Committee meets for its final 2-day meeting of the year.

The FOMC isn't expected to raise the Fed Funds Rate from its current "target range" near 0.000%, but when the FOMC adjourns at 2:15 PM Wednesday, its press release will dominate the news.

Specifically, watch for verbiage on the expected economic growth for 2010 because no matter what the Fed says, mortgage rates will be in flux. As one example:

If the Fed says inflation is under control, mortgage rates should fall
If the Fed says inflation pressures are growing, mortgage rates should rise

There's other news this week, too, including PPI and CPI -- 2 popular inflation gauges, plus some housing data, too.

If you need to lock a rate this week, it may be safer to lock prior to the FOMC's adjournment. Given the recent strength in Retail Sales and the reports of "crowded malls" this past weekend, the Fed may choose to revise its growth estimates for the economy -- a move that would be awful for mortgage rates.

Strong Retail Sales Data Could Lead To Higher Mortgage Rates In January

Bob Phillips (Realty Executives) — Fri, 11 Dec 2009 10:02:57 -0600

If you wonder what mortgage rates and home affordability will look like next year, today's Retail Sales data may hold your answer.

Versus October, November's ex-auto sales were up by more than 1 percent. Analysts expected the increase, but not an increase of this magnitude.

"Ex-auto" means that motor vehicles and parts are excluded from the data.

Home values are increasing in many parts of the country and household net worths are rising, too. Therefore, we can infer from the Retail Sales report that U.S. consumers are starting to feel better about their individual finances, and about the economy overall.

To homebuyers and rate shoppers, strong Retail Sales data may foreshadow higher mortgages ahead. This is because sales data is a by-product of consumer spending and consumer spending accounts for more than two-thirds of the economy.

As spending increases, the economy tends to expand, drawing investment dollars into stock markets and away from bond markets -- including mortgage-backed bonds, the basis for conforming mortgage rates.

Less bond demand leads to higher rates and, therefore, lower levels of home affordability.

Despite the Holiday Season momentum, however, 2009 will likely mark just the second time that Retail Sales data fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.

But, if November's Retail Sales is a reliable indicator of consumer sentiment overall, we should expect 2010 to rebound strongly. And when it does, mortgage rates should suffer.

The housing market is recovering, mortgage rates are still near all-time lows, and the government is offering an $8,000 tax credit to qualified buyers through April 30, 2010. If you plan to buy a home next spring, you may want to consider moving up your timeframe. Waiting may be costly.

Foreclosure Activity Falls For The 4th Straight Month

Bob Phillips (Realty Executives) — Thu, 10 Dec 2009 12:41:10 -0600

Since peaking in July 2009, national foreclosure activity has dropped through 4 consecutive months.

On a month-to-month basis, November's foreclosure activity fell another 8 percent.

However, national foreclosure activity continues to be dominated by a minority of states.

As reported by RealtyTrac.com, more than half of November's foreclosure-related activity sourced from just 4 states:

California
Florida
Illinois
Michigan

These are the same 4 states that topped October's foreclosure activity despite three of them posting month-to-month declines last month.

The remaining Top 10 states in terms of total foreclosure activity include Arizona, Texas, Ohio, Georgia, Nevada and New Jersey.

If you've been actively looking at REO lately, you've likely noticed that true bargains are harder to find. This is because buyers of all types -- first-timers, move-ups, and investors -- are purchasing bank-owned homes aggressively and getting better at identifying the "best ones".

But just because supplies are dwindling doesn't mean you should just jump in. Buying foreclosures isn't for everyone for two very strong reasons:

Homes are often sold as-is and may have "issues"
The closing process can be unpredictable

Therefore, if you're thinking of buying a foreclosed home, be sure to talk with me about potential problems before going under contract. Better too soon than too late.

There are still good deals in the foreclosure market, but based on November's data, they may not last through the winter. "Distressed home" sales now account for 30 percent of home resale activity.

How To Trim Your Utility Bills Without Inconveniencing Yourself

Bob Phillips (Realty Executives) — Wed, 09 Dec 2009 06:14:48 -0600

The average family spends $2,200 per year in electric bills and the average home is responsible for twice the amount of greenhouse gases than the average automobile.

Whether you want to save money or save the environment, this 5-minute piece from the NBC Today Show is for you. In it, you'll learn that just by being aware of your energy consumption, you can reduce it by up to 15 percent.

The piece centers on a device called a Power Monitor which retails from $30 to $100, depending on the model. It measures the actual cost of using an appliance, or using a light, or charging a laptop, or any other household energy use.

Among the cost findings:

A plugged-in phone charger no phone attached costs $0.10 per hour
Cooking with a microwave costs $0.88 per hour
Big screen TVs cost $0.06 per hour to operate

Obviously, turning off lights when rooms aren't in use saves money, too.

By making small changes -- most of which aren't inconvenient -- the average family can drop its energy bill by hundreds of dollars each year.

How To Increase Your 2009 Mortgage Interest Tax Deduction

Bob Phillips (Realty Executives) — Tue, 08 Dec 2009 12:52:40 -0600

For many American homeowners, interest paid on a mortgage is tax-deductible in the year in which it was paid.

Knowing that, eligible homeowners can increase their 2009 tax deductions just by making their January 2010 mortgage payment before the end of the year.

By paying in 2009, the mortgage interest paid can be applied against 2009's itemized tax deductions even though the payment isn't technically due until 2010.

It can reduce your tax burden come Thursday, April 15, 2010.

And lest you think you're paying the mortgage "in advance", remember that mortgage interest is paid in arrears; a payment due January 1 accounts for interest that accumulated in December 2009 anyway.

Tax planning is a complicated issue and not all homeowners qualify for mortgage interest tax deductions. Check with your tax professional before making tax planning decisions.

If you don't have an accountant you trust, call or email me anytime; I'm happy to make a recommendation to you.

What's Ahead For Mortgage Rates This Week : December 7, 2009

Bob Phillips (Realty Executives) — Mon, 07 Dec 2009 11:42:44 -0600

Mortgage markets finally reversed course last week, selling off with fury and causing prices to plummet.

When bonds prices fall, rates rise.

The action broke a multi-week winning streak, much to the disappointment of rate shoppers everywhere. Rate hikes came in stages.

First, early in the week, mortgage bonds fell out of favor as traders booked profits ahead of the November jobs report and as concerns over a Dubai Default waned.

Then, on Friday, when the jobs report was ultimately released, it showed a net loss of just 11,000 jobs in November and dip in the Unemployment Rate to 10.0 percent.

Mortgage markets got hit again.

Now, since bottoming last Monday, mortgage pricing is worse by more than 100 basis points. As that figure relates to rates, it's a jump of anywhere from a quarter- to a half-percent.

Last week was a bad week to not be locked in. Unfortunately, this week may not be much better.

Without much data due for release, momentum should lead mortgage rates higher. Amid a few confidence surveys and a speech by Fed Chairman Bernanke, the biggest news on the week will be Friday's Retail Sales report.

Retail Sales matters to mortgage rates because consumer spending accounts for two-thirds of the economy. And now, with jobs data looking stronger, Retail Sales are expected to show a modest increase versus last month.

If the data comes in better-than-expected, mortgage rates should rise -- much like they did on the jobs data. On the other hand, if the data is weak, expect rates to retreat.

So far this season, Holiday Shopping has been mixed.

Mortgage rates tend to rise faster than they fall so if your homebuying or refinance needs are immediate, it may be prudent to lock your rate rather than to wait and see what happens with the economy and this week's momentum.

Despite getting worse last week, mortgage rates are still very low.

Falling Unemployment Rate Leads To Higher Mortgage Rates Today

Bob Phillips (Realty Executives) — Fri, 04 Dec 2009 09:40:37 -0600

This morning's jobs report is causing mortgage rates to rise, capping a week during which rates have already jumped 3/8 percent off all-time lows.

The government's November Non-Farm Payrolls report reinforced the notion that the recession is nearly over, if not over already.

Just 11,000 jobs were lost last month -- much fewer than analysts had expected -- as the Unemployment Rate fell to 10.0%.

If it seems strange to be talking economic recovery while Americans are still losing jobs -- 7.2 million since 2008 -- remember that data always needs context.

See, analysts view employment figures as a lagging indicator for the economy. This is because business owners tend to make hiring decisions based on how business has been -- not on how it will be at some point in the future.

The jobs report rarely reflects the "right now". As an example, job loss peaked in January 2009 -- 4 months after the height of the financial crisis.

We saw the same pattern during the Recession of 2001.

According to government data, during the last recession, job loss peaked in October 2001 but the recession ended the very next month. It wasn't until October 2002 that employment went net positive on a monthly basis.

And this is why investors are cheering November's jobs report. Better-than-expected numbers and a falling Unemployment Rate show that the economy is improving.

Unfortunately for rate shoppers, better-than-expected data is pushing mortgage rates higher. Rates are expected to open 0.250% higher versus yesterday's close.

Store Credit Cards : The Hidden Cost Of "Instant Savings"

Bob Phillips (Realty Executives) — Thu, 03 Dec 2009 01:27:22 -0600

'Tis the season to do shopping -- and get bombarded with offers to open credit cards.

The deals are tempting, too. "Open a charge card today" and save up to 20% on your purchase. Considering that the average Black Friday ticket was $343, that's $68 saved per store.

For big-ticket items like televisions, the savings are even bigger.

But for people in the market for a new home -- or looking to refinance -- taking advantage of in-store savings could be a long-term money loser.

Every time you apply for a credit card, your credit score drops.

According to myFICO.com, "new credit" accounts for 85 out of 850 possible credit scoring points. New credit is defined by such traits as:

Number of recently opened accounts
Number of recent credit inquiries
Time since credit inquiry(s)
Proportion of accounts that are recently opened to all open accounts

Shoppers with few open credit cards are more likely to see their scores drop that shoppers with many cards.

Regardless, a credit score is worth protecting because of how mortgage rates are made. A conventional mortgage applicant with 20% equity whose FICO is 720-739 will be offered rates 0.125% higher than a comparable applicant at 740.

For 700-719, the rate increases by 0.375%
For 680-699, the rate increases by 0.750%
For 660-679, the rate increases by 1.250%

Having a low credit score can be expensive.

It is okay to take advantage of in-store savings during the holiday shopping season, but it's also important to be aware of how your credit score may be affected.

If you're not applying for a mortgage in the next six months, you'll likely be alright. But, on the other hand, if you know you'll need your FICO soon, consider whether saving 15 percent on a $343 ticket is worth the long-term cost of a higher mortgage rate.

Pending Home Sales Data Forecasts Higher Home Values Next Month

Bob Phillips (Realty Executives) — Wed, 02 Dec 2009 15:03:42 -0600

When a home seller accepts a contract on an MLS-listed property, the property's status changes from "Active" to "Pending".

This means the home is scheduled to sell, but not yet sold.

Each month, the National Association of Realtors® tallies the number of pending homes and publishes the data as the Pending Homes Sales Index report.

In October, for the 9th straight month, the index gained. It's the longest such streak in Pending Home Sales history.

Because a "pending" home sale is just a contract between buyer and seller, it's not as important to the economy as actual home sales. However, the Pending Home Sales Index can be a fine predictor of future activity.

Historically, 80 percent of homes under contract "close" within 60 days, and most others close within 120 days. Recent Existing Home Sales data corroborates this. Home sales activity is at its highest pace in nearly 3 years.

The Pending Home Sales Index does have some shortcomings, though:

It doesn't account for newly constructed homes, a small but important part of the real estate market
It doesn't track For Sale By Owner properties and other non-MLS listed homes
Its sample set is small, measuring just 20 percent of all MLS-listed sales

Despite this, however, Pending Home Sales is a terrific measure of real estate market strength. Homes are going under contract at a dizzying pace. It's thinning out home inventory supplies and pressuring prices to rise.

This chain reaction is what makes Pending Home Sales Index worth tracking. As the number of homes under contract increase, home prices can't be far behind.

Servicers Face Penalties, Ill Repute as Administration Rallies for More Modifications

Bob Phillips (Realty Executives) — Tue, 01 Dec 2009 10:48:36 -0600

Here's an article by Carrie Bay, from today's DSNews.com

Many critics argue that the pace of modifications under the federal Making Home Affordable (MHA) program isn't keeping stride with the nation's raging foreclosure problem, so the Obama administration announced Monday that it is taking a new approach to pressure servicers into converting more trial modifications to "permanent" status.

The government says that from now on, servicers failing to meet performance obligations under the federal program will face punishment, "subject to consequences which could include monetary penalties and sanctions."

The Treasury is also instituting new procedures and additional paperwork that will allow for closer monitoring of mortgage companies' foreclosure prevention efforts. Major servicers will be required to submit a schedule to the Department demonstrating their plans to reach a decision on each home loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers.

Each of these top servicers will also be assigned an "account liaison," a representative from the Treasury or program administrator Fannie Mae who will follow up daily as necessary to monitor progress against the servicer's submitted plan. In addition, daily progress will be aggregated by the end of each business day and reported to the administration.

Treasury officials say the mortgage industry isn't doing enough to keep people in their homes with the tools provided them by the federal government, and soon that alleged lack of effort will be on display for the world to see. According to the New York Times, the administration also plans to resort to public humiliation as a means of persuasion.

A Treasury official told the paper over the weekend that the administration will openly wag its federal finger at those servicers who it feels are lagging in their efforts to churn out permanent mortgage mods by publicizing the servicers' names.

Michael S. Barr, Treasury's assistant secretary for financial institutions, told the New York Times, "The banks are not doing a good enough job. Some of the firms ought to be embarrassed, and they will be."

Not only is the administration playing on servicers' sense of Public Relations, but it's also tightening its grip on those compensatory carrots. Barr says the Treasury will not shell out the incentive payments promised to mortgage modifiers until homeowners successfully complete the 90-day trial modification and the servicer converts the workout to a permanent modification.

"They're not getting a penny from the federal government until they move forward," Barr told the Times.

Murmurs throughout the industry are labeling the administration's newfound drive for modification conversion as a political ruse. Next month's report from the Treasury on MHA performance is expected to include data on the number of permanent modifications converted by each servicer, and by all preliminary estimates the numbers will not be good.

According to a report from the Congressional Oversight Panel last month, fewer than 2,000 assisted homeowners had successfully completely the trial mod period and been converted to permanent status. The administration said in its announcement Monday, "Roughly 375,000 of the borrowers who have begun trial modifications since the start of the program are scheduled to convert to permanent modifications by the end of the year." But the key phrase here is "scheduled."

Many servicers say the problem is not how swiftly they can finalize the loan workouts as permanent, but delays on the homeowner's part to complete all the necessary documentation for conversion. The administration is hoping to address this issue as well.

The Treasury is extending the period for trial modifications started on or before September 1st to give homeowners more time to submit required information, and it is streamlining the application process and paperwork requirements. Servicers will also be required to report to the administration the status of each modification to help identify situations where borrowers face obstacles in moving to the permanent phase.

As part of the new actions announced Monday, additional outreach initiatives at the state, local, and county level are also being deployed, as well as new Web tools and resources to help borrowers' quickly submit the required documentation.

One special servicer, Florida-based Ocwen Financial, stands out as already having considerable success in moving troubled homeowners into a permanent modification.

Paul Koches, Ocwen's EVP and general counsel, explained to DS News that his organization's trial-to-permanent conversion rate is well over 50 percent, versus the rest of the industry's average conversion rate of single digit percentages.

According to Koches, there are three key reasons for Ocwen's high change-over rate:

• scalable technology that allows Ocwen to perform the re-underwriting upfront and maximize the likelihood of sustainable results;

• the use of behavioral science, psychological principles, and communication to ensure buy-in from the homeowner; and

• partnerships with nonprofits and faith-based groups working at the grassroots level to assist the servicer with homeowner outreach and gathering the required documents.

"We're happy to see the shift in focus more to permanent mods rather than trial mods," Koches said. "Obviously, it's the number of trials that are converted to permanent mods that will make a difference in bringing down foreclosures." ( End of article.)

New Home Supplies Plummet, Pressuring Home Prices Higher

Bob Phillips (Realty Executives) — Tue, 01 Dec 2009 10:40:34 -0600

The supply of newly-built homes fell to its lowest levels since 2006, offering additional proof of a housing market in recovery.

Home supply is defined as the amount of time it would take to sell the current inventory of homes at the current pace of sales.

In October, for the 8th consecutive month, home supplies fell. Since peaking in January 2009, it's now down by almost half.

Lower supply leads to higher prices. This is Economics 101.

Furthermore, supply is expected fall into 2010. According to the government, builders are breaking ground on new homes at a declining pace, even as sales ramp up.

Builders are cheering the October New Home Sales report, but its the everyday sellers of "existing homes" that have real reason to celebrate.

See, as builders clear out their respective inventories and turn profitable, there's less reason for them to offer the types of over-the-top purchase incentives that characterized the last 12 months of selling.

With fewer builder incentives, the playing field levels between large corporations and individual home sellers.

And while this is happening, buyers are eagerly taking advantage of low mortgage rates and federal tax credits for buying homes. It's pressuring home prices higher overall.

Since January 2009, the average sale price of a newly-built home is up 6 percent.

What's Ahead For Mortgage Rates This Week : November 30, 2009

Bob Phillips (Realty Executives) — Mon, 30 Nov 2009 08:28:38 -0600

Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying.

The holiday-shortened trading week amplified what should have been modest gains into large ones.

Conforming mortgage rates dropped by about a quarter-percent last week, dropping them near their best levels of the year -- and of all-time.

Oddly, mortgage rates are falling as the U.S. dollar weakens. This is atypical because mortgage bonds are repaid in U.S. dollars. When the value of the dollar is falling, therefore, the value of holding mortgage bonds become less over time.

Investors are snapping up bonds with fury, however. Partially because of lingering concerns related to Dubai, and partially because of faith in the U.S. economy's long-term health.

This week, those beliefs could be shaken to the core -- specifically because of Friday's jobs report.

It's no secret that the economy is growing. Housing is improving, banks are re-capitalizing, and businesses are making capital investment. However, employment is lagging.

More than 4 million jobs have been lost this year and the unemployment rate is north of 10 percent for the first time since 1983. Consumers are worried for their jobs and are guarding their wallets the holiday season as a result.

The economy can't grow without consumer spending, though, and that's why Friday's job figures will play an especially large role in mortgage markets. If employment data goes positive, stock markets will rally at the expense of mortgage rates.

Conversely, if data looks worse, mortgage rates should dip.

Either way, it's a gamble. If you haven't looked at the benefits of a refinance lately, waiting until Friday to see what happens may be ill-advised. This is because the last two times mortgage rates fell this low, markets corrected within 48 hours, sending rates soaring higher.

Rates look good today. Consider locking something in before rates have reason to rise.

Should You Consider A 15-Year Fixed Mortgage?

Bob Phillips (Realty Executives) — Sun, 29 Nov 2009 12:02:53 -0600

For today's home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.

The 15-year/30-year interest rate spread is near its 5-year high.

Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments. This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.

As compared to 30-year terms, 15-year products repay 3 times as much principal each month.

Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting. The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.

Another negative is that the sheer size of the payment. If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do.

In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term. If you can manage it, though, the rewards are tangible.

At today's rates, a 15-year fixed vs. a 30-year fixed costs $230 extra per $100,000 borrowed.

Late 2009 South Orange County Housing Update

Bob Phillips (Realty Executives) — Sat, 28 Nov 2009 16:26:16 -0600

Hello again – I hope your Thanksgiving Day ( And Black Friday.) went beautifully!

In our local housing market, the number of available houses is now the lowest in at least a few years. In Coto de Caza, for example, it went from a previous low of 131 houses, back in mid January, to hovering around 150 in the Spring, but has since steadily declined, to now being less than 115.

Correspondingly, the number of houses in escrow has followed a slightly different path over that time, from a low of 9 in January, up to a high in mid-summer close to 40, but recently staying in the high 20’s to the low 30’s. Prices in the lowest ranges have nudged up from their low levels over the first half of the year, while the higher price ranges have continued to slightly decline. ( This is still the most negotiable price range.) Meanwhile, interest rates, have fluctuated slightly up and down, but are presently at historical lows – in the high 4’s and low 5’s. This has shaped up as an excellent opportunity to buy real estate. ( Between now and February 1^st is typically the best time to buy a house in our area.)

The median price for Orange County has nudged upward every month, since January. While the hottest market is in the lower ranges – under $350k for condos, and under $500k for detached houses – the flurry of activity there – 5 – 10 offers on virtually every property – is starting to move up to the next tier of prices – into more medium priced houses. These are becoming a much easier sell than they were 6 months ago – giving those sellers more hope that they can actually sell and move up to one of the more negotiable bigger houses.

If you are thinking of buying and/or selling a house in South Orange County this is an excellent time – especially if you’re moving upwards. The lower market is still hot – a seller’s market, while the highest price ranges are extremely negotiable. Selling in either the lower or medium range is good – IF you choose to be competitive. The upper market is still not a good market for equity seller’s – you HAVE to be competitive with neighboring short sales and lender owned properties! In this higher price range, in MOST cases, price trumps nice “features” or amenities.

To assist you in your quest, I have a couple of superb resources that have been improved this past year. First, you can conduct your own MLS search, with no need to register ( unless you’d prefer to be notified of updates, or new listings.) by clicking here. The other resource that some friends are using and enjoying is called ListingBook. It allows you to do a bit more tweaking, and notifies you daily of new listings or price reductions. Click here for ListingBook Both of these venues also assist potential sellers, giving you up to date info on your potential competition.

I suggest that you try both sites, to see if one feels more comfortable for you. With both you can search practically all areas of Southern California, and both are soon expanding to the entire state. By the way – you can also search for leases at either venue – just plug in a monthly payment range instead of a full price. ( for example: $900. to $1300. per month, rather than $350,000 – to $400,000., in the price box.)

Do you know of someone who is having difficulty with their mortgage? Such homeowners are almost everywhere you look. Here is information about President Obama’s Stimulus and Affordability & Stability Programs - a couple of links to information about the plans:

http://www.makinghomeaffordable.gov/ Making Home Affordable Borrower Q&A

If you know of someone who is thinking about doing a short sale or a loan modification, I am well schooled in both situations, and would be pleased to counsel them with no obligation. There are a lot of scams out there – including heavily advertised attorneys, who have gone out of business, overnight.

In case you’re not aware, I have been blogging about real estate in South Orange County for over two years. Here are some recent posts on my blog regarding other recent real estate matters:

The new $6,500 federal tax credit for 'move-up' home buyers may benefit you

The Home Price Index Shows Home Values Increasing. Case-Shiller Agrees.

Housing Starts Are Down And Why That's Terrific News For Sellers

More Signs Of Recovery : The Cost Of Owning Versus Renting Falls Back To Historical Norms

I also have a weekly update on mortgages, to keep you updated on that activity. Here’s the latest:

What's Ahead For Mortgage Rates This Week : November 23, 2009

And: Should You Consider A 15-Year Fixed Mortgage?

Feel free to subscribe to my blog – I average 5 new posts per week, and they are easy to either read or delete. You can also connect with me on Facebook, Twitter, LinkedIN, or Plaxo if you’re on any of those.

That’s all for now – thanks for your time. Let’s talk again soon.

The Home Price Index Shows Home Values Increasing. Case-Shiller Agrees.

Bob Phillips (Realty Executives) — Sat, 28 Nov 2009 12:04:27 -0600

It's official -- home prices are no longer in free fall.

According to the Federal Housing Finance Agency, the Home Price Index posted its first quarterly increase since 2007 last quarter.

The news was reported Tuesday.

The Home Price Index is an interesting metric. It's huge in its scope, accounting for every home sold in the country that backs a mortgage bound for Fannie Mae or Freddie Mac with two notable exceptions:

It doesn't track new construction
It doesn't track multi-unit homes

Because the Home Price Index makes these specific exclusions, and because it doesn't account for FHA and jumbo mortgages, some analysts discount the HPI's relevance. They prefer the private-sector Case-Shiller Index instead.

Now, to be fair, the Case-Shiller has its own set of flaws, too.

For example, it excludes condos and co-ops, and only tracks sales in 20 cities nationwide. But, of all the private home valuation models, Case-Shiller is the most well-known and most widely-used.

The Case-Schiller Index was also released Tuesday and the report showed the same results as its government-issued counterpart -- home values increased between the second and third quarter.

When the Home Price Index and Case-Shiller Index reach similar conclusions, markets tend to buy-in. Home buyers should, too.

Home values have likely bottomed and are starting to turn higher, as shown in two separate reports. High sales volume and dwindling supply are contributing factors. So are low mortgage rates and a tax credit.

If you're on the fence about buying a home, at least consider your options. In 2010, homes are unlikely to be as cheap to buy, or as cheap to finance.

One Reason Why Mortgage Rates Are Back To All-Time Lows

Bob Phillips (Realty Executives) — Fri, 27 Nov 2009 09:32:02 -0600

Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.

The FOMC Minutes is a companion to the Federal Reserve's post-meeting press release. It's released 3 weeks after the Fed adjourns and details the internal debates that shape our nation's monetary policy.

As compared to the press release, the minutes can be rather lengthy. November's press release featured 428 words, the minutes offered 6531.

However, this extra level of detail shapes markets and mortgage rates. With Wall Street unsure about the economy's path, investors look to our nation's central bankers for guidance.

The Fed has made several points clear:

The economy shows tell-tale signs of improvement
Unemployment threatens the recovery
Inflation pressures are low, for now

Overall, the FOMC Minutes paint the economy as in a state of measured repair, and under tight federal surveillance. Investors like this message and, as a result, stock and bonds markets are improving.

If you haven't checked mortgage rates lately, make a point to do that. In the wake of the FOMC Minutes, conforming mortgage rates are now hovering near their all-time lows set exactly 1 year ago.

Existing Home Sales Blow Past Expectations

Bob Phillips (Realty Executives) — Tue, 24 Nov 2009 10:02:20 -0600

Another month, another piece of evidence that the housing market is in recovery.

Existing Home Sales surged in October as the nation's homebuyers took advantage of low mortgage rates, low list prices, and, for some, a generous tax credit.

Home resales are 23 percent higher versus a year ago and home supply is down to 7 months nationwide.

Inventory hasn't been this low since February 2007.

The news shouldn't be surprising, however. The same real estate trade group that produces the Existing Home Sales report also publishes a monthly report meant to predict future home sales called the Pending Home Sales Index.

Pending Home Sales have been through the roof since mid-May.

So, with pending home sales showing no signs of slowing and 80% of pendings turning into actual, closed sales, we can expect existing home sales volume to rise in the coming months, too. Especially because Congress extended the home buyer tax credit to include (1) "Move-up" buyers and, (2) Buyers with higher household incomes.

It's terrific news for home sellers. The housing market turnaround means higher sale prices and fewer concessions to buyers long-term.

To buyers, on the other hand, the news isn't so good. The window to find a "deal" appears to be closing quickly.

What's Ahead For Mortgage Rates This Week : November 23, 2009

Bob Phillips (Realty Executives) — Mon, 23 Nov 2009 09:53:35 -0600

Mortgage markets worsened last week on a mixed bag of economic data. Inflation data came in soft, but so did the start of the holiday shopping season.

For the first time in a month, mortgage rates worsened last week, adding roughly 0.125 percent on conforming fixed-rate products, and a little bit more on ARMs.

Despite rates worsening, there was still some good news for home buyers and would-be refinancers. Mortgage rate volatility was markedly lower than in recent weeks. You could shop for mortgage rate last week and actually take your time about it.

This is in stark contrast to the last month or so over which mortgage rates changed every few hours, on average.

This week, though, because a heavy data calendar is combining with a holiday-shortened trading week, rates aren't likely to stay as tame.

Monday: Existing Home Sales
Tuesday: Consumer Confidence, Home Price Index, Fed Minutes
Wednesday: New Home Sales, Personal Income and Outlays

Each of these data points are market-movers by themselves. In tandem, however, they could really shake things up. Then, at the tail end of the week, markets will react to Black Friday.

If stores look full Friday and initial receipts appear high, stock markets should rise at the expense of bonds, leading mortgage rates higher.

Additionally, expect that mortgage rate changes will be amplified because of low trading volume. This could work in your favor, or out of your favor -- depending on the market direction.

With mortgage rates at such low levels and unlikely to fall much further, locking a rate is advisable. If you choose to float, though, keep your loan officer on speed dial because when rates do rise, they're going to rise quickly.

Housing Starts Are Down And Why It's Terrific News For Sellers

Bob Phillips (Realty Executives) — Thu, 19 Nov 2009 10:47:33 -0600

A "Housing Start" is a home on which construction has started and, for the 4th straight month, national single-family housing starts held steady last month.

When the demand for homes grows faster than the number of homes for sale, prices increase.

As recent home sales data confirms, buyers currently outpace sellers and one consequence of this is an increase in multiple-offer situations this year.

It's no wonder home prices are up across so many neighborhoods.

October's Housing Starts report is yet another piece of housing data foreshadowing rising home prices into 2010.

Building Permits were also down in October, a potential demand-to-supply imbalance magnifier. Without permits, there's no future construction. This drains supply. Meanwhile, tax breaks and low rates tend to stimulate demand and, right now, we've got both.

Therefore, so long as demand remains semi-constant into the New Year, expect home prices to rise.

In many markets - like in South Orange County, California, where I live and work - they already are.

Orange County Housing Report: Short Sales are a Nightmare

Bob Phillips (Realty Executives) — Wed, 18 Nov 2009 11:13:41 -0600

Here is the latest Orange County, California, Housing Report from my friend Steven Thomas, the President of Altera Real Estate.

Monday, November 16, 2009

Have you ever pedaled up a steep hill on your bicycle as a kid only to wonder if you were going to ever make it? That's the same feeling that some buyers, sellers and agents get in trying to arrive at a successful close date. Short sales are homes where the asking price is less than the outstanding loan amounts. These are subject to the lender's approval. This approval takes anywhere from weeks to months.

There is nothing short about a short sale.

About a year ago, it was just about impossible for agents to show a short sale to a prospective buyer. Nine times out of ten, the short sale already had at least one offer on the home, which had been submitted to the lender for approval. However, the home remained on the market as an active listing until that approval was received. So, agents would show their buyers home after home only to find out that most short sales already had an offer submitted, which amounted to a gigantic waste of everybody's time.

Agents then would contact every short sale to see if it was "really" available. This stemmed from the fact that an escrow is not opened until after lender approval. Escrow is not opened so that expenses are not incurred for any work completed. Inspections, homeowner association documentation, appraisals, etcetera, are all fee based and time sensitive and nobody is going to want to pick up the tab if a lender does not approve a file or if there are significant delays.

Short sale data has been cleaned up over the course of the last year. It is now mandatory for all properties that have offers submitted to a lender to be placed in "Backup Offer" status or "Pending Sale" status within the Multiple Listing Service.

I used to reference the overstated active listing inventory and the understated pending sale statistics last year at this time. The data is still not perfect, but is much improved and easier for agents and buyers to look at homes.

In response to so many short sales no longer counted as a part of the active listing inventory, the total pending sale inventory has blossomed. There are currently 6,838 total pending sales. 58% are short sales, only 8% are foreclosures and 33% are homeowners with equity.

There are 3,703 pending sales that have been pending for more than one month. 76% are short sales, 5% are foreclosures and 19% are homeowners with equity. There are 2,132 pending sales that are have been pending for more than two months. A stunning 91% are short sales, 1% are foreclosures and 8% are homeowners with equity.

Almost a third of the total pending sales count has been pending for more than two months and most are short sales. Even though more and more homeowners have defaulted on loans, lenders have not been foreclosing. As a result, the market has grown much hotter with an increase in successful short sales and a shift to more equity sellers.

The huge increase in pending short sales has not materialized as a huge increase in closed short sales. All of these numbers illustrate that dealing with short sales is like bicycling up a steep hill as a kid. Just because a buyer's offer is accepted, if it is a short sale, it is going to take a long time to close escrow.

Since short sales are distressed, their pricing attracts a lot of attention from buyers. Buyers can expect multiple offers in dealing with short sales. In the end, buyers have to move quickly and compete with other offers only to wait for a long period of time for the seller to obtain lender approval.

Sometimes the process takes such a long time that the buyer walks away and looks for something else. Many of them move onto equity sellers. The Orange County real estate market and the entire state of California are at the mercy of lenders. The bottom line, the market is full of challenges and the short sale process makes the current real estate landscape even more challenging.

So, how do the rest of the numbers look? The market has continued to not change much over the past few months. Once again, the past two weeks are no exception. The active listing inventory decreased slightly by 30 homes over the past two weeks, totaling 7,719. That's 5,539 fewer than last year and 9,514 fewer than two years ago. The inventory has dropped by 4,123 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year.

Demand - the number of new pending sales within the past month - increased by 75 in the past couple of weeks to 3,241, a 2% increase. Last year's demand was 684 fewer and two years ago was 1,946 fewer. The expected market time for all of Orange County decreased in the past couple of weeks from 2.48 to 2.38 months. The expected market time last year was at 5.18 months and two years ago it was at 13.31 months. For homes priced below $1 million, the expected market time is 1.87 months.

For homes priced above $1 million, the expected market time is 8.79 months. That range represents 27% of the active listing inventory, but just 7% of demand. For only the second time this year, the number of distressed properties on the market increased. The distressed inventory increased by 73 homes, or 3%. 32% of the active inventory is distressed compared to 44% last year.

There are currently only 339 foreclosures in all of Orange County, an increase of 25 in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.82 months. Last year the expected market time was at 1.22 months.

Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,123 short sales on the active market, an increase of 48 in the past two weeks. Short sales currently represent 28% of the active listing inventory. The expected market time for short sales is currently at 1.72 month versus 7.08 months one year ago (this number was grossly overstated as illustrated earlier).

Homeowners with equity in their home now account for 68% of the current active inventory. If a buyer wants to avoid the many pitfalls of dealing with short sales and foreclosures, they should turn their attention to equity sellers. End of Steven's report.

Personal note from Bob Phillips: I have been involved on each side of short sales, both as a listing agent - with great success - and as a buyer's agent - also with excellent success. I have seen approvals from lenders in as short as a few weeks, resulting in a 60 day period from offer to close of escrow, and I have also seen approvals take more than 3 months to obtain.

If you are thinking of doing a short sale, as a seller, or getting involved with one, as a buyer, you'd be best advised to consult with a Realtor experienced with the process. ( And have a lot of patience.)

The 2010 Conforming Loan Limits

Bob Phillips (Realty Executives) — Wed, 18 Nov 2009 07:33:05 -0600

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on "typical" housing costs nationwide.

Loans in excess of this amount are typically called "jumbo".

While home prices increased from 1980 to 2006, so did conforming loan limits. Since then, however, as home prices have dipped, the conforming loan limit has held.

Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit.

The 2010 conforming loan limits, as released by the government, are:

1-unit properties : $417,000
2-unit properties : $533,850
3-unit properties : $645,300
4-unit properties : $801,950

But conforming loan limits don't apply to all U.S. geographies equally. As a result of various economic stimuli since 2008, the government now considers certain regions around the country "high-cost" areas. ( My Orange County, California is one of these.) In these areas, conforming loan limits can range to $729,750.

There are less than 200 such areas nationwide. The complete list is published on the Fannie Mae website.

What's Ahead For Mortgage Rates This Week : November 16, 2009

Bob Phillips (Realty Executives) — Sun, 15 Nov 2009 22:27:06 -0600

Mortgage markets improved last week as foreign buyers of mortgage debt helped to push mortgage rates to a 4-week low.

It marked the 3rd consecutive week that rates improved, breathing extra life into this year's ongoing Refi Boom.

Fixed-rate, conforming mortgage rates fell about 0.125 percent on the week. ARMs did about the same.

There wasn't much data to move mortgage rates last week; investors worked mostly on momentum and trends. However, the Friday University of Michigan Consumer Sentiment survey release garnered some attention.

After worsening in August and September, consumer sentiment fell for the third straight month in October. Analysts worry about what it could mean to the economy. Holiday Shopping season is here and consumer spending fuels the economy. If households hold the purse strings tight, our nation's budding economic recovery may stall.

In a scenario like that, employment rates won't rebound so fast, but rate shoppers might not mind. Slower-than-expected economic growth tends to suppress mortgage rates, helping to improve home affordability overall.

This week, data comes back into focus.

At 8:30 AM ET today, the government will release October's Retail Sales report. This one should be closely watched for its ability to change rates. A weak report should drag rates down, and a strong one should push rates up.

Then, on Tuesday and Wednesday, look for PPI and CPI -- two key inflation indices. Inflation causes mortgage rates to rise so if either of these reports comes in hotter-than-expected, rates will almost certainly rise.

And, lastly, also on Wednesday, we'll get the Housing Starts report for October. Don't expect the markets to move on this one, but keep an eye on the data anyway. Housing markets remain crucial to economic recovery.

Despite rates hovering near recent lows, remember that markets change quickly. A rate quote from the morning is rarely valid by the afternoon and, when rates rise, rates rise fast.

The new $6,500 federal tax credit for 'move-up' home buyers may benefit you

Bob Phillips (Realty Executives) — Sun, 15 Nov 2009 15:43:12 -0600

From today's Los Angeles Times:

If you fit the criteria and are considering buying another house in the coming year, you might want to speed up the process and close by the June 30 expiration date.

By Kenneth R. Harney, November 15, 2009

Reporting from Washington - Take a close, hard look at the new $6,500 federal tax credit for so-called move-up home buyers that passed the Senate and House recently. Though it's been getting second billing to the original $8,000 credit for first-time purchasers -- now extended by Congress through June 30 -- the $6,500 credit for current homeowners just might have your name on it.

How does it work? When will it be available?

The new credit is available now. It took effect Nov. 6, the day President Obama signed the legislation that created it. This means that if you fit the key criteria -- you've owned and lived in your home for a consecutive five out of the last eight years, and your adjusted household income doesn't exceed $125,000 if you file taxes singly or $225,000 if you are married filing jointly -- you can claim the credit as soon as you close on a qualifying house.

That could be next week, next month or next spring. There is no "move-up" requirement in the new credit. In fact, homeowners who plan to downsize into a smaller dwelling may prove to be significant users of the credit, along with people who are moving because of employment changes.

If you fit the criteria and are considering buying another house sometime in the coming year, you might want to speed up the process and sign a contract by April 30 and close by the June 30 expiration date. Think of it this way: If the government is willing to give you $6,500 to act a little faster than you had planned, hey, why not?

Some other key features of the $6,500 credit you ought to know about:

* Whatever you intend to buy, the house cannot cost more than $800,000.

* The replacement house must become your main home. There is no requirement in the legislation that you sell your current home. You could rent it out, turn it into a second home or list it for sale later in 2010 when prices might be higher. If you plan to retain it, however, make sure that you move into the new house on the day you close so that there is no question it was your principal residence at that time.

* Like the first-time buyer credit, the $6,500 version permits a variety of dwelling types for your purchase. These include new or existing single-family homes, condominiums, manufactured or mobile homes, and boats that function as your principal residence. You cannot claim the credit if you are buying a second home or an investment property.

* The Internal Revenue Service is required by Congress to scrutinize claims for tax credits -- both for the $6,500 and the $8,000 credits -- far more closely in the coming months than it did earlier this year. This is because federal investigators have documented significant instances of fraud -- supposed home buyers who were as young as 4, and "sales" that were fabricated. Investigators also found numerous cases of technical violations, such as purchase transactions among immediate family members, which are prohibited.

The revised rules require taxpayers to submit copies of their settlement statements (HUD-1 forms), along with their requests for credits using IRS Form 5405. Congress' new rules also prohibit individuals under the age of 18 or who are counted as dependents on another taxpayer's filings from claiming the credit.

* Home buyers in 2009 -- those who go to closing after Nov. 6 but no later than Dec. 31 -- can claim the $6,500 credit on their 2009 federal tax returns, or amend their 2008 returns. Similarly, eligible buyers in 2010 will be able to file for the credit on their 2009 returns or 2010 returns. Talk to your tax advisor regarding timing decisions.

* If you aren't sure if you can make the deadlines established for the new credit -- a binding contract by April 30 and a settlement by June 30 -- do not assume that Congress will provide another extension. All the political and budgetary signs point the other way, and some of the primary authors of the credit insist that this is it -- no more extensions next year. Take them at their word.

One consumer resource that answers frequently asked questions about both the $6,500 and $8,000 extended credits is www.federalhousingtaxcredit.com, sponsored by the National Assn. of Home Builders.

kenharney@earthlink.net

Distributed by the Washington Post Writers Group.

Are There Any Foreclosure Deals Left?

Bob Phillips (Realty Executives) — Fri, 13 Nov 2009 09:11:15 -0600

For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.

As reported by RealtyTrac.com, more than half of October's foreclosure-related activity came from just 4 states:

California
Florida
Illinois
Michigan

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.

Foreclosure activity is down 3 percent from last month
Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada's foreclosure pace is down 4% from last year. This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada's year-to-year foreclosure rate hadn't fallen in more than 4 years.

It's too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by. First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn't for everyone.

For one, properties are often sold as-is and may be defective. The cost of repairs may negate "the deal" or "the steal" -- depending on the cost of the home.

In the end, fundamentally, buying a foreclosed home is the same as buying a "regular" home -- there's a contract and a closing. Most of the steps in the middle, however, are different.

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website. If you like what you see, give me a call and let's discuss the possibilities.

There's still good deals in the foreclosure market, especially in the higher price ranges, and this is likely to continue for the next year, in my humble opinion.

Banks Raise Mortgage Qualification Standards

Bob Phillips (Realty Executives) — Thu, 12 Nov 2009 06:23:45 -0600

Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet.

Nationally, mortgage approval standards are tightening.

The data comes from a quarterly survey the Federal Reserve sends to its member banks. The Fed asks senior bank loan officers around the country whether "prime" residential mortgage guidelines had tightened in the last 3 months.

For the period July-September 2009:

Roughly 1 in 4 banks said guidelines tightened
Roughly 3 in 4 banks said guidelines were "basically unchanged"

Just one bank said its guidelines had loosened.

Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.

Today's borrowers face a host of hurdles including:

Higher minimum FICO scores
Larger downpayment requirements for purchases
Larger equity positions for refinances
Lower debt-to-income ratios

In other words, mortgage rates may stay low into 2010, but that won't matter to homeowners that don't meet minimum eligibility standards. With each passing quarter, that list gets smaller.

Therefore, if you're on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too.

Acting sooner is probably better than acting later.