by Lawrence Yun,
Chief Economist, NAR Research
The Wall Street Journal recently published an article raising questions about people's optimistic "outlook" on generating wealth from their homes. The Journal characterized that view as wishful thinking. While not intending to cast aspersions on the analytical acumen of that well-respected publication, I do have a different take on that issue. My attempt in this corresponding article is to lay out the same information the newspaper published — albeit in a different light.
Owning a Home Still a Good Long-Term Investment
The Journal article claims that those hoping for a quick rebound in home prices are likely to be disappointed. Yes, some economists predict home prices won't bottom out before the second half of 2009, and some don't see a bottom until 2011 or 2012. But market timing for home prices is even more difficult than trying to time rises in stock prices. Unlike stocks, real estate is local. In fact, the latest government data show only four states — Arizona, California, Florida, and Nevada — registering home price declines of double digits. This government data has narrow coverage on homes with subprime loans, so the data should be viewed as price trends in neighborhoods with little subprime loan exposure. That makes sense, as less than 10 percent of homes have subprime loans. Interestingly, these four states are the very ones showing recent notable sales increases as buyers have taken advantage of the lower prices. Anecdotal reports of multiple bids suggest prices may be bottoming out in these areas.
Home Prices
Experts say you should generally expect house prices to rise just a bit more than inflation and roughly in line with household income. OK - let's look at how that works in real life. If home prices rise (on average) at an inflation-adjusted rate of 2.5%-3% a year, then nominal home prices can be expected to increase about 4.5%-6% a year. In other words, if a household buys a $200,000 home today, then that home will be worth $310,000 in 10 years, $505,000 in 20 years, and $823,000 in 30 years, assuming a 5% home price growth. Given that most homeowners have 30-year mortgages, all the debt will have been paid off at the 30-year mark. At that point, the $823,000 is pure equity. If home price appreciation increases further — say at 6% — that home will be worth $1.08 million in 30 years. Given America's poor savings rate (that's a different issue altogether), any form of savings discipline such as a monthly mortgage payment helps Americans accumulate wealth.
Confidence in Rising Home Value
Even by the paper's own sources of data used to support its claims, owning a home is often still a better long-term investment than stocks. The Journal cites a poll of 2,000 adults conducted by real estate data provider Zillow.com that found 61% believed the value of their home would either remain level or rise over the next six months. Another survey of more than 1,000 homeowners, sponsored by real-estate-services firm Realogy Corp., found that 91% thought that owning a home was the best long-term investment they could make. And an online survey of 5,000 people commissioned by Citigroup found that just 32% believed it was a good time to invest in stocks — but 51% said it was a good time to buy a home. Well, who am I to argue with housing consumers!
Fundamentals Impacting Home Prices
Yes, as The Journal says, in the long term, house prices are driven by fundamentals that are hard to predict. Those fundamental drivers include immigration, birth rates, the size and nature of households, and incomes. The trick is to figure out where job and income growth will be strongest and where those households want to live.
Again I cite our mantra: All real estate is local. In fact, it can be really local. I remember a story in my local neighborhood paper several years ago about two homes that looked exactly alike. Both homes fetched roughly the same price at one point. But at the time of the Journal's recent story, one home was worth more than double the other - not because of any physical differences in the homes, but because of neighborhood characteristics.
Investors and the Academic Debate
Few homeowners have the time to follow academic debates about the details of home price measurements or the plethora of analyses on home prices published in economic or real estate academic journals, trade publications, or even The Wall Street Journal. But for those who choose to purchase properties as an investment only - that is, they're not actually living in the property — The Journal's story about a couple who, for lack of a better term, became "property managers" is telling. For nearly four decades, a married couple invested in rental properties in and near Stevens Point, WI. They thought real estate was a good way "to get rich slowly." Despite the housing downturn, they have gradually (emphasis added) built their net worth from zero to around $2.5 million through their rental properties. Yes, there were challenges — they have dealt with countless plumbing emergencies, evicted deadbeats and even once had to clean up after a suicide in one of their properties.
Well, I salute that couple. Property management is not for everyone. But some people are willing to face its challenges for the financial rewards — and ignore silly academic debates. Witness the couple's' accumulation of $2.5 million.
Final Thoughts
Buying a home is a serious decision with serious responsibilities. It should be done with care and be based on good information. Consumers should always be wary of any "how to profit from it" slogans but at the same time should not be discouraged by doom-sayers. Yes, those households who bought during the buying frenzy and at the peak a few years back have lost a lot - if they are trying to cash in NOW. But that does not mean that the new crop of buyers will face the same fate. Generally, homeowners do accumulate wealth over the long-term. If one of your clients is a consumer who is financially and emotionally ready, current conditions certainly favor buyers over sellers. The time will surely come again when sellers have the edge. Trying to market-time a purchase may result in remorse from buying "too high" or "selling too late."
Those home buyers willing to stay in the market for the long term will likely feel good and reap the benefits from their long-term investment.
Source: NAR's Real Estate Insights
December 2008
Monday, December 29, 2008
Amid Rate Drops, Mortgage Applications Soar
Daily Real Estate News December 24, 2008
With interest rates approaching reaching historic lows,the application volume for mortgages jumped a seasonally adjusted 48 percent last week compared with the previous week, according to the Mortgage Bankers Association's weekly survey.
Application activity for the week ending December 19th was 124.6 percent over the same period a year ago,the Washington, D.C-based MBA said. The spike in applications coincided with another drop in mortgage rates, as the government's efforts to unfreeze the residential-mortgage market show further signs of having the desired effect.
Applications to refinance existing mortgages increased 62.6 percent on a week-to-week basis, while applications filed for mortgages to buy homes increased a seasonally adjusted 10.6 percent. Refinancings made up 83.2 percent of all applications filed last week, up from 76.9 percent the previous week.
According to the MBA survey, interest rates fell across the board:
Rates on 30-year fixed-rate mortgages averaged 5.04 percent last week, their lowest level in more than five years. This was down from 5.18 percent the previous week.
Fifteen-year fixed-rate mortgages averaged 4.91 percent, down from 4.93 percent the week before.
One-year ARMs averaged 6.36 percent, down from 6.63 percent.
Source: Mortgage Bankers Association and MarketWatch (12/24/08)
With interest rates approaching reaching historic lows,the application volume for mortgages jumped a seasonally adjusted 48 percent last week compared with the previous week, according to the Mortgage Bankers Association's weekly survey.
Application activity for the week ending December 19th was 124.6 percent over the same period a year ago,the Washington, D.C-based MBA said. The spike in applications coincided with another drop in mortgage rates, as the government's efforts to unfreeze the residential-mortgage market show further signs of having the desired effect.
Applications to refinance existing mortgages increased 62.6 percent on a week-to-week basis, while applications filed for mortgages to buy homes increased a seasonally adjusted 10.6 percent. Refinancings made up 83.2 percent of all applications filed last week, up from 76.9 percent the previous week.
According to the MBA survey, interest rates fell across the board:
Rates on 30-year fixed-rate mortgages averaged 5.04 percent last week, their lowest level in more than five years. This was down from 5.18 percent the previous week.
Fifteen-year fixed-rate mortgages averaged 4.91 percent, down from 4.93 percent the week before.
One-year ARMs averaged 6.36 percent, down from 6.63 percent.
Source: Mortgage Bankers Association and MarketWatch (12/24/08)
Friday, December 19, 2008
Mortgage Rates Plunge to Record Lows
Daily Real Estate News December 19, 2008
In response to the Federal Reserve's cut in the federal funds rate to near zero, Freddie Mac reports that the 30-year fixed mortgage rate fell to 5.17 percent during the week ended Dec. 18—down from 5.47 percent last week and the lowest since the survey's inception in 1971.
Interest on 15-year fixed loans slipped to 4.92 percent from 5.20 percent. Meanwhile, the five-year hybrid adjustable mortgage rate dropped to 5.6 percent from 5.82 percent; and the one-year ARM dipped to 4.94 percent from 5.09 percent.
A year ago, the 30-year fixed rate stood at 6.14 percent, the 15-year fixed rate at 5.79 percent, the five-year hybrid ARM at 5.9 percent, and the one-year ARM at 5.51 percent.
Source: The Wall Street Journal, Steve Kerch (12/19/08)
In response to the Federal Reserve's cut in the federal funds rate to near zero, Freddie Mac reports that the 30-year fixed mortgage rate fell to 5.17 percent during the week ended Dec. 18—down from 5.47 percent last week and the lowest since the survey's inception in 1971.
Interest on 15-year fixed loans slipped to 4.92 percent from 5.20 percent. Meanwhile, the five-year hybrid adjustable mortgage rate dropped to 5.6 percent from 5.82 percent; and the one-year ARM dipped to 4.94 percent from 5.09 percent.
A year ago, the 30-year fixed rate stood at 6.14 percent, the 15-year fixed rate at 5.79 percent, the five-year hybrid ARM at 5.9 percent, and the one-year ARM at 5.51 percent.
Source: The Wall Street Journal, Steve Kerch (12/19/08)
Is Now a Good Time to Refinance?
Daily Real Estate News December 19, 2008
Refinancing now sounds appealing, but for lots of people, it isn’t all that easy. Applications for refinances tripled earlier this month after the Federal Reserve promised to buy up $600 billion of mortgage debt. And rates for 30-year fixed mortgages are falling below 5 percent – the lowest in 50 years – but many home owners will have trouble doing the deal.
Having at least 20 percent equity in a home is important. A credit score of at least 720 and a debt ratio that is less than 43 percent are both essential.
Jumbo mortgages are still expensive. A 5/1 adjustable-rate with an initial interest rate for five years and an annual reset is averaging 6.6 percent. Traditional 30-year fixed are at 7.49 percent. Home owners in this situation may have to just ride it out.
Source: Business Week, Lauren Young (12/22/08)
Refinancing now sounds appealing, but for lots of people, it isn’t all that easy. Applications for refinances tripled earlier this month after the Federal Reserve promised to buy up $600 billion of mortgage debt. And rates for 30-year fixed mortgages are falling below 5 percent – the lowest in 50 years – but many home owners will have trouble doing the deal.
Having at least 20 percent equity in a home is important. A credit score of at least 720 and a debt ratio that is less than 43 percent are both essential.
Jumbo mortgages are still expensive. A 5/1 adjustable-rate with an initial interest rate for five years and an annual reset is averaging 6.6 percent. Traditional 30-year fixed are at 7.49 percent. Home owners in this situation may have to just ride it out.
Source: Business Week, Lauren Young (12/22/08)
10 Real Estate Predictions for 2009
Daily Real Estate News December 17, 2008
2009 is likely to be a year of continuing adjustment to a changing real estate marketplace. Prepare yourself and your business with these predictions from HGTV’s FrontDoor.com Web site:
Sellers will continue to face falling home values in the new year because they’ll be competing with banks and builders who are slashing prices to sell off the still-huge inventory of foreclosures and new homes.
The Obama administration will act on its plan to crack down on abusive lending practices.
Mortgage holders in danger of losing their homes will receive more assistance from a variety of programs since the Senate's Joint Economic Committee has predicted two million foreclosures in 2009.
Banks' restructuring should bring increasing calm, making loan modifications and short sales easier to obtain. Eventually this will lead to a decrease in the number of bank-owned properties on the market.
Mortgage applications will continue to receive a comprehensive review, requiring borrowers to provide extensive income and debt documentation. Those with the best credit will get the best rates.
The foreclosure crisis has created wiser consumers, with a deeper understanding of real estate, mortgages, and credit enabling better decision-making going forward.
Green is good with increasing numbers of buyers opting for smaller homes that are within walking distance of school and work.
Buyers and sellers will be more and more tech savvy, relying on tools like video, webcasts, and mobile search. Consumers and practitioners will benefit from being ahead of the curve.
Prices will be low as will interest rates, creating great buying opportunities, and likely, inspiring reluctant buyers to make their move.
The recession will end and buyers will regain confidence in the market.
Source: Frontdoor.com (12/03/08)
Friday, December 12, 2008
Low Prices, Low Rates Mean Opportunity
Daily Real Estate News December 8, 2008
Housing prices have fallen dramatically all over the country and rates on 30-year fixed-rate mortgages are already close to 5.5 percent. Experts say it's possible, with government encouragement, that rates will fall as low as 4.5 percent.Now is the time for first-time buyers to step up. Here are some things to consider:
Prices have always softened in the winter. As temperatures fall, bargain hunters will have bigger then usual opportunities.
New homes are likely to become scarce. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, said he believes that a steep drop-off in inventory of new homes is coming soon, due to a rapid decrease in home builder activity.
Location, location, location. Buying the best-priced house in a really good neighborhood is still smart.
Will values go up? You may have to live in a house for 10 years, but over time, buyers will almost certainly make money.
Source: The New York Times, Ron Lieber (12/05/08)
Housing prices have fallen dramatically all over the country and rates on 30-year fixed-rate mortgages are already close to 5.5 percent. Experts say it's possible, with government encouragement, that rates will fall as low as 4.5 percent.Now is the time for first-time buyers to step up. Here are some things to consider:
Prices have always softened in the winter. As temperatures fall, bargain hunters will have bigger then usual opportunities.
New homes are likely to become scarce. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, said he believes that a steep drop-off in inventory of new homes is coming soon, due to a rapid decrease in home builder activity.
Location, location, location. Buying the best-priced house in a really good neighborhood is still smart.
Will values go up? You may have to live in a house for 10 years, but over time, buyers will almost certainly make money.
Source: The New York Times, Ron Lieber (12/05/08)
Are Some Owners Purposefully Falling Behind?
Daily Real Estate News December 12, 2008
Housing experts are growing increasingly alarmed that programs to bail out troubled home owners might have the unintended consequence of encouraging people to miss mortgage payments in order to qualify for easier loan terms.
Such initiatives typically require that borrowers be 60 to 90 days late on payments to get a mortgage reworked. In an attempt to prevent abuses, lenders are scrutinizing home owners' financial status—by poring over tax records, pay stubs, investment accounts, and bank statements—to determine if they really need a loan modification to avoid foreclosure.
Source: USA Today, Stephanie Armour (12/10/08)
Housing experts are growing increasingly alarmed that programs to bail out troubled home owners might have the unintended consequence of encouraging people to miss mortgage payments in order to qualify for easier loan terms.
Such initiatives typically require that borrowers be 60 to 90 days late on payments to get a mortgage reworked. In an attempt to prevent abuses, lenders are scrutinizing home owners' financial status—by poring over tax records, pay stubs, investment accounts, and bank statements—to determine if they really need a loan modification to avoid foreclosure.
Source: USA Today, Stephanie Armour (12/10/08)
NAR: Pending Home Sales Holding Steady
Daily Real Estate News December 9, 2008
Pending home sales eased against a deteriorating economic backdrop but remain in a stable range, according to the National Association of Realtors®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September. It is 1 percent below October 2007 when it was 89.8.
“Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range,” says Lawrence Yun, NAR chief economist. “We did see a spike in August when mortgage conditions temporarily improved, which underscores two things – there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market.”
Conditions remain uneven around the country, but some areas that are showing healthy gains in pending home sales from a year ago include many Florida and California markets; Providence, R.I.; Lansing, Mich.; Oklahoma City; and Las Vegas. By the RegionHere's what the PHSI showed across the country:
South: jumped 7.8 percent to 95.9 in October but remains 2.9 percent below a year ago.
Northeast: rose 0.6 percent to 68.1 but is 14.1 percent below October 2007.
Midwest: declined 4.3 percent to 79.7 in October and is 6.8 percent below a year ago.
West: fell 8.7 percent to 103.7 but is 17.4 percent higher than October 2007.
The Economic ForecastNew-home sales: for 2008 should total 486,000 this year, decline to 393,000 in 2009 and then grow to 446,000 in 2010. Housing starts, including multifamily units, are projected at 934,000 units in 2008 and 731,000 next year before rising to 772,000 in 2010.Existing-home sales: looking at middle-ground assumptions, existing-home sales are forecast to total 4.96 million this year, and then increase to 5.19 million in 2009 and 5.55 million in 2010.Home prices: “Price projections are challenging in an environment with so many variables and divergent local conditions,” Yun says. “The home price correction to date has brought prices in line with fundamentals, but buyer pessimism could cause prices to overshoot downward, resulting in further economic deterioration.” NAR’s housing affordability index is likely to remain quite favorable, averaging 138 in 2009.
Unemployment rate: is estimated at 7.2 percent in the first quarter, rising to 8.3 percent by the end of 2009. Inflation: as measured by the Consumer Price Index, is seen at 0.7 percent in 2009. Inflation-adjusted disposable personal income is expected to grow 1.5 percent in 2009.GDP: Yun expects growth in the U.S. gross domestic product (GDP) to contract through the first half of 2009, then stabilize and expand in latter part of the year – lifted by a home sales recovery. “Given the critical role of housing in an economic recovery, we’re confident sufficient stimulus will be offered to bring more buyers to the market,” he says.
Could a drop in interest rates help? The 30-year fixed-rate mortgage will probably decline to 5.6 percent in the first quarter, rise slowly to 6 percent by the end of 2009, and average 6.2 percent in 2010. NAR President Charles McMillan says he’s hopeful about considerations by the U.S. Treasury to help the housing market. “Efforts to bring down mortgage interest rates demonstrate a clear understanding of the role housing plays in stabilizing the economy,” McMillan says. “We’re very encouraged by all of the proposals getting serious consideration in Washington to help home buyers. More sales will stabilize home prices by bringing down inventory, and would lessen foreclosure pressure.”
Source: NAR
Pending home sales eased against a deteriorating economic backdrop but remain in a stable range, according to the National Association of Realtors®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September. It is 1 percent below October 2007 when it was 89.8.
“Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range,” says Lawrence Yun, NAR chief economist. “We did see a spike in August when mortgage conditions temporarily improved, which underscores two things – there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market.”
Conditions remain uneven around the country, but some areas that are showing healthy gains in pending home sales from a year ago include many Florida and California markets; Providence, R.I.; Lansing, Mich.; Oklahoma City; and Las Vegas. By the RegionHere's what the PHSI showed across the country:
South: jumped 7.8 percent to 95.9 in October but remains 2.9 percent below a year ago.
Northeast: rose 0.6 percent to 68.1 but is 14.1 percent below October 2007.
Midwest: declined 4.3 percent to 79.7 in October and is 6.8 percent below a year ago.
West: fell 8.7 percent to 103.7 but is 17.4 percent higher than October 2007.
The Economic ForecastNew-home sales: for 2008 should total 486,000 this year, decline to 393,000 in 2009 and then grow to 446,000 in 2010. Housing starts, including multifamily units, are projected at 934,000 units in 2008 and 731,000 next year before rising to 772,000 in 2010.Existing-home sales: looking at middle-ground assumptions, existing-home sales are forecast to total 4.96 million this year, and then increase to 5.19 million in 2009 and 5.55 million in 2010.Home prices: “Price projections are challenging in an environment with so many variables and divergent local conditions,” Yun says. “The home price correction to date has brought prices in line with fundamentals, but buyer pessimism could cause prices to overshoot downward, resulting in further economic deterioration.” NAR’s housing affordability index is likely to remain quite favorable, averaging 138 in 2009.
Unemployment rate: is estimated at 7.2 percent in the first quarter, rising to 8.3 percent by the end of 2009. Inflation: as measured by the Consumer Price Index, is seen at 0.7 percent in 2009. Inflation-adjusted disposable personal income is expected to grow 1.5 percent in 2009.GDP: Yun expects growth in the U.S. gross domestic product (GDP) to contract through the first half of 2009, then stabilize and expand in latter part of the year – lifted by a home sales recovery. “Given the critical role of housing in an economic recovery, we’re confident sufficient stimulus will be offered to bring more buyers to the market,” he says.
Could a drop in interest rates help? The 30-year fixed-rate mortgage will probably decline to 5.6 percent in the first quarter, rise slowly to 6 percent by the end of 2009, and average 6.2 percent in 2010. NAR President Charles McMillan says he’s hopeful about considerations by the U.S. Treasury to help the housing market. “Efforts to bring down mortgage interest rates demonstrate a clear understanding of the role housing plays in stabilizing the economy,” McMillan says. “We’re very encouraged by all of the proposals getting serious consideration in Washington to help home buyers. More sales will stabilize home prices by bringing down inventory, and would lessen foreclosure pressure.”
Source: NAR
Friday, December 5, 2008
Green condos under construction soon in Kimberton
A groundbreaking is tentatively scheduled this month for Kimberton Village Green, a residential and commercial condominium complex touted as Chester County’s first green development.
The 28 condominiums are designed to minimize the impact on the Earth through building techniques that reduce construction waste, a sustainable approach to managing storm water runoff, and the extensive use of nontoxic paints and building materials, making the air inside much healthier. Technology will let residents see how they’re using energy in their homes, and ports for plug-in hybrid cars will be available in the garage.
Pirello said Kimberton Village Green has received a platinum rating from the U.S. Green Building Council due to its Leadership in Energy and Environmental Design (LEED) practices.
Pirello said the prefabricated condos are being delivered in early spring.
Source; Daily Local; 12/1/08
The 28 condominiums are designed to minimize the impact on the Earth through building techniques that reduce construction waste, a sustainable approach to managing storm water runoff, and the extensive use of nontoxic paints and building materials, making the air inside much healthier. Technology will let residents see how they’re using energy in their homes, and ports for plug-in hybrid cars will be available in the garage.
Pirello said Kimberton Village Green has received a platinum rating from the U.S. Green Building Council due to its Leadership in Energy and Environmental Design (LEED) practices.
Pirello said the prefabricated condos are being delivered in early spring.
Source; Daily Local; 12/1/08
Ecovillage in West Grove a possibility
The future residents of Concord Ecovillage and their development partners, Aye Partners LLC, presented plans to build a solar-powered, LEED Platinum certified neighborhood in West Grove Borough at the November 5 council meeting.
The homes will be energy independent and carbon neutral. Residents will have no energy utility bills.
The partnership will unveil their plans to potential residents and the public at 5:30 p.m. on December 7 at the Kennett Friends Meeting.
Concord Ecovillage is also organizing a day-long tour of two ecovillages in the Washington D.C. area. Further details are listed at www.concordecovillage.org.
Source: Avon Grove Sun; 12/3/08
The homes will be energy independent and carbon neutral. Residents will have no energy utility bills.
The partnership will unveil their plans to potential residents and the public at 5:30 p.m. on December 7 at the Kennett Friends Meeting.
Concord Ecovillage is also organizing a day-long tour of two ecovillages in the Washington D.C. area. Further details are listed at www.concordecovillage.org.
Source: Avon Grove Sun; 12/3/08
Philadelphia-area Housing Market Poised to Begin Recovery Next Summer, Says NAR Economist
On Monday, the Suburban West REALTORS Association hosted Jed Smith, Managing Director of Quantitative Research for the National Association of REALTORS.
Presenting to the 2009 Association Liaisons, Smith commented on the current status of the Philadelphia-area housing market and made some favorable comparisons of our market to others across the U.S. Smith also commented on the forecast for the local market, saying, "We project that the Philadelphia housing market to begin to show recovery in July/August of 2009 which will mean a significant uptick in sales and values."
Smith added that it was possible that the market could improve sooner but that would mostly depend on an increase in consumer confidence in early 2009.
Courtesy: Suburban West REALTORS Association 12/08
Presenting to the 2009 Association Liaisons, Smith commented on the current status of the Philadelphia-area housing market and made some favorable comparisons of our market to others across the U.S. Smith also commented on the forecast for the local market, saying, "We project that the Philadelphia housing market to begin to show recovery in July/August of 2009 which will mean a significant uptick in sales and values."
Smith added that it was possible that the market could improve sooner but that would mostly depend on an increase in consumer confidence in early 2009.
Courtesy: Suburban West REALTORS Association 12/08
Mortgage applications surge by record
Reuters 12/3/08
Potential borrowers lured by enticing mortgage rates
NEW YORK - Mortgage applications surged by the largest amount on record last week as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 28 soared a record 112.1 percent to 857.7, the highest reading since the week ended March 21 when it reached 965.9.
Potential borrowers were lured by enticing mortgage rates, which dropped dramatically after the Federal Reserve unveiled a plan last week to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae , Freddie Mac , and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
"Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship," Orawin Velz, Associate Vice President of Economic Forecasting, said in a statement.
"When rates plummeted following the Fed's announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound," she said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.47 percent, down a whopping 0.52 percentage point from the previous week, the largest drop since 1990 when the MBA started conducting the weekly survey.
Interest rates are at their lowest level since the week ended June 24, 2005, when they reached the same level. Interest rates are sharply below the peak of 6.59 percent reached during the summer, but only slightly below the 2008 low of 5.49 percent in January, according to the trade group.
Interest rates were below year-ago levels of 5.82 percent.
Refinancing volume upThe MBA's seasonally adjusted purchase index rose 38.0 percent to 361.1, the largest rise since the week ended February 24, 1995. The index, however, came in well below its year-ago level of 464.3, a drop of 22.2 percent.
Overall mortgage applications last week were 8.3 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 29.7 percent.
Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said they are seeing a positive uptick in refinancing volume due to the drop in interest rates.
"Consumers who were previously on the fence to refinance or purchase a home are in a position to take advantage of the decline in rates," said on Tuesday.
"Now it'll be a matter of qualification as lenders evaluate each borrower individually," he said.
The low interest rates can help many drop their monthly payments, and is especially good news for those who have adjustable- rate mortgages and are looking to lock in a secure fixed-rate mortgage, he said.
The group's seasonally adjusted index of refinancing applications jumped 203.3 percent to 3,802.8, the largest rise on record. The index was up 37.7 percent from its year-ago level of 2,761.3.
The refinance share of applications increased to 69.1 percent from 49.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 1.4 percent, down from 3.0 percent the previous week.
Fixed 15-year mortgage rates averaged 5.13 percent, down from 5.78 percent the previous week. Rates on one-year ARMs decreased to 6.61 percent from 6.87 percent.
The U.S. housing market is currently suffering the worst downturn since the Great Depression. A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.
While U.S. housing market indexes tend to be volatile, data from the MBA may help gauge how the hard-hit sector is faring.
Potential borrowers lured by enticing mortgage rates
NEW YORK - Mortgage applications surged by the largest amount on record last week as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 28 soared a record 112.1 percent to 857.7, the highest reading since the week ended March 21 when it reached 965.9.
Potential borrowers were lured by enticing mortgage rates, which dropped dramatically after the Federal Reserve unveiled a plan last week to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae , Freddie Mac , and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
"Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship," Orawin Velz, Associate Vice President of Economic Forecasting, said in a statement.
"When rates plummeted following the Fed's announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound," she said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.47 percent, down a whopping 0.52 percentage point from the previous week, the largest drop since 1990 when the MBA started conducting the weekly survey.
Interest rates are at their lowest level since the week ended June 24, 2005, when they reached the same level. Interest rates are sharply below the peak of 6.59 percent reached during the summer, but only slightly below the 2008 low of 5.49 percent in January, according to the trade group.
Interest rates were below year-ago levels of 5.82 percent.
Refinancing volume upThe MBA's seasonally adjusted purchase index rose 38.0 percent to 361.1, the largest rise since the week ended February 24, 1995. The index, however, came in well below its year-ago level of 464.3, a drop of 22.2 percent.
Overall mortgage applications last week were 8.3 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 29.7 percent.
Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said they are seeing a positive uptick in refinancing volume due to the drop in interest rates.
"Consumers who were previously on the fence to refinance or purchase a home are in a position to take advantage of the decline in rates," said on Tuesday.
"Now it'll be a matter of qualification as lenders evaluate each borrower individually," he said.
The low interest rates can help many drop their monthly payments, and is especially good news for those who have adjustable- rate mortgages and are looking to lock in a secure fixed-rate mortgage, he said.
The group's seasonally adjusted index of refinancing applications jumped 203.3 percent to 3,802.8, the largest rise on record. The index was up 37.7 percent from its year-ago level of 2,761.3.
The refinance share of applications increased to 69.1 percent from 49.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 1.4 percent, down from 3.0 percent the previous week.
Fixed 15-year mortgage rates averaged 5.13 percent, down from 5.78 percent the previous week. Rates on one-year ARMs decreased to 6.61 percent from 6.87 percent.
The U.S. housing market is currently suffering the worst downturn since the Great Depression. A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.
While U.S. housing market indexes tend to be volatile, data from the MBA may help gauge how the hard-hit sector is faring.
Investors Not Happy With 4-Loan Limit
Daily Real Estate News December 5, 2008
Some real estate investors are up in arms over a new Fannie Mae-Freddie Mac policy that limits to four the number of real estate loans that can be held by a single person.
The rule, which took effect Dec. 1, prohibits an investor from obtaining even a fifth mortgage no matter how much money he puts down or how much income documentation he provides. It offers no exceptions for assets or history of success as a real estate investor.
“The four-house rule is going to keep us in a recession longer,” said Tom Hutchens, an Atlanta-area investor. “It’s going to keep qualified buyers out of the market.
”Some investors are trying to work around the rule by partnering with other investors to either buy in cash or use their eligibility to borrow.
Source: The Atlanta Journal-Constitution, D.L. Bennett (12/05/08)
Some real estate investors are up in arms over a new Fannie Mae-Freddie Mac policy that limits to four the number of real estate loans that can be held by a single person.
The rule, which took effect Dec. 1, prohibits an investor from obtaining even a fifth mortgage no matter how much money he puts down or how much income documentation he provides. It offers no exceptions for assets or history of success as a real estate investor.
“The four-house rule is going to keep us in a recession longer,” said Tom Hutchens, an Atlanta-area investor. “It’s going to keep qualified buyers out of the market.
”Some investors are trying to work around the rule by partnering with other investors to either buy in cash or use their eligibility to borrow.
Source: The Atlanta Journal-Constitution, D.L. Bennett (12/05/08)
NAR-Backed Rate Buydown Gains Traction
Daily Real Estate News December 4, 2008
An effort by the NATIONAL ASSOCIATION OF REALTORS® to spur home sales through a mortgage-interest rate buydown appears to be gaining traction.
Reports in major news media like the Washington Post and Wall Street Journal today quote sources familiar with a meeting between U.S. Treasury officials and NAR in November in which the buydown proposal was discussed.
"Treasury officials told the REALTORS® that the (buydown) plan could be a more effective way to help home owners than focusing solely on borrowers who are struggling to meet their monthly payments," the Washington Post story says. Under the Treasury plan, lenders would sell newly issued mortgage-backed securities to the government provided the interest-rate on the loans collateralizing the securities was no higher than 4.5 percent. Although NAR supports a buydown, it does not take a position on how low interest rates should go. To pay for the plan, Treasury would issue bonds at 3 percent, creating a 1.5-percent spread that it could use for buying the securities. Those securities would then be purchased by secondary mortgage market companies Fannie Mae and Freddie Mac, which are under federal conservatorship.
NAR has been calling for a buydown and other measures to help stimulate housing sales as part of a four-point plan it showcased at its annual meeting in Orlando last month. To date, tens of thousands of REALTORS® have sent letters to their members of Congress asking for quick action to help housing, which is widely considered a crucial first step to a broader economic recovery. Other parts of the four-point plan include making 2008 high-cost conforming loan limits, which are now $729,750, permanent, and improving the home buyer tax credit by expanding it to all buyers, not just first-timers, and eliminating the repayment requirement.Some analysts have calculated that an interest-rate buydown could help as many as 2.5 million households.
"We strongly encourage the Treasury to move quickly with its plan to lower interest rates to encourage current buyers to act rather than continue to wait," said NAR President Charles McMillan in a public statement on the Treasury's most recent action with the plan.
"We are pleased to see that the leadership of the Treasury Department is seriously considering the actions we discussed to lower interest rates. The result of such action will help the nation’s economic recovery and bring stability to the housing market."
Source: REALTOR® Magazine Online
An effort by the NATIONAL ASSOCIATION OF REALTORS® to spur home sales through a mortgage-interest rate buydown appears to be gaining traction.
Reports in major news media like the Washington Post and Wall Street Journal today quote sources familiar with a meeting between U.S. Treasury officials and NAR in November in which the buydown proposal was discussed.
"Treasury officials told the REALTORS® that the (buydown) plan could be a more effective way to help home owners than focusing solely on borrowers who are struggling to meet their monthly payments," the Washington Post story says. Under the Treasury plan, lenders would sell newly issued mortgage-backed securities to the government provided the interest-rate on the loans collateralizing the securities was no higher than 4.5 percent. Although NAR supports a buydown, it does not take a position on how low interest rates should go. To pay for the plan, Treasury would issue bonds at 3 percent, creating a 1.5-percent spread that it could use for buying the securities. Those securities would then be purchased by secondary mortgage market companies Fannie Mae and Freddie Mac, which are under federal conservatorship.
NAR has been calling for a buydown and other measures to help stimulate housing sales as part of a four-point plan it showcased at its annual meeting in Orlando last month. To date, tens of thousands of REALTORS® have sent letters to their members of Congress asking for quick action to help housing, which is widely considered a crucial first step to a broader economic recovery. Other parts of the four-point plan include making 2008 high-cost conforming loan limits, which are now $729,750, permanent, and improving the home buyer tax credit by expanding it to all buyers, not just first-timers, and eliminating the repayment requirement.Some analysts have calculated that an interest-rate buydown could help as many as 2.5 million households.
"We strongly encourage the Treasury to move quickly with its plan to lower interest rates to encourage current buyers to act rather than continue to wait," said NAR President Charles McMillan in a public statement on the Treasury's most recent action with the plan.
"We are pleased to see that the leadership of the Treasury Department is seriously considering the actions we discussed to lower interest rates. The result of such action will help the nation’s economic recovery and bring stability to the housing market."
Source: REALTOR® Magazine Online
Taking the First-Time Homebuyer Credit
Homebuyers could be eligible for a tax break, essentially an interest-free loan worth as much as $7,500, under The Housing Assistance Tax Act of 2008.
Known as the first-time homebuyer credit, the tax break is available if you purchase a home on or after April 9, 2008 and before July 1, 2009, and meet certain income and other requirements.
The credit is equal to 10 percent of the home purchase price, up to a limit of $7,500.
Unlike other tax credits, this one must be paid back to the government, over a 15-year period.
Who is considered a "first-time" homebuyer?
Any taxpayer who has never owned a home as a principal residence.
However, you could qualify if you’ve owned a home before, but not as your principal residence during the three years prior to the purchase.
Married couples cannot qualify for the credit unless both spouses meet the three-year rule.
What qualifies as a principal residence?
Your principal residence is where you live for most of the year. That can be a house, a condo, co-op, house trailer or houseboat, within the United States. Vacation and rental homes are not eligible.
What are the income limitations?
For single taxpayers, the credit decreases as modified adjusted gross income rises above $75,000, and it disappears altogether above $95,000. For example, if your income is $85,000, you could receive a credit worth no more than $3,750.
Modified adjusted gross income is your adjusted gross income, or AGI (your gross income minus certain deductions such as IRAs and alimony) with tax-free foreign income counted.
For married couples, the credit starts to decrease at modified adjusted gross of $150,000 and disappears after $170,000.
When would I get the money from the credit?
You get the money only after you claim the credit on either your 2008 or 2009 tax return, NOT when escrow closes on the home.
However, you can speed up the process if you buy a home in 2009, prior to July 1. Instead of waiting until you file your taxes in 2010, you can (after Dec. 31, 2008) treat the purchase as if it were completed in 2008. That means you can amend your 2008 return and get the credit in 2009.
How does the credit affect the taxes I owe and the refund I get?
The credit reduces your tax liability, that is, the amount of taxes you are required to pay. Depending on your tax withholdings, you could get a bigger refund or owe less in taxes when you file.
If, for example, your taxes owed for one year are $6,000, you’ve had $4,000 withheld from your wages, and you buy a home worth $100,000, the housing credit would entitle you to a refund, as shown below.
Tax liability $6,000
Minus housing credit -7,500
Minus withholding -4,000
Refund $5,500
But if, for example, your tax liability was $10,000, but you had paid no withholding, then the credit would reduce the taxes you owe, as ilustrated below.
Tax Liability $10,000
Minus housing credit - 7,500
Minus withholding 0
Taxes due $2,500
How do I repay the credit?
You start repaying the credit in the second year after the tax year that the home was purchased.
So if you took the credit on your 2008 tax return, you begin repayment when you file your 2010 tax return. Your payments are set at $500 per year for 15 years.
They are “paid” as part of your tax liability. Depending on your tax situation, you either get $500 less on your refund each year, or you owe $500 more in taxes.
You might need to increase your withholding or make quarterly estimated payments to cover for the repayment and ensure that you don't get penalized for under-withholding.
What if circumstances change?
If you sell the house before the end of 15 years, you will have to pay the balance remaining on the credit on the tax return for the year the house was sold.
If you no longer use the home as your principal residence (say you rent it out), you pay the remaining balance on the tax return for the year the use changed.
If you die before the 15 years, the balance does not need to be repaid.
If you get a divorce and the home is transferred to your spouse, your spouse will be responsible for future payments.
Other considerations
The credit is not available if:
You buy your home from a close relatives, such as your spouse, parents, grandparent, child or grandchild.
Your home financing comes from tax-exempt mortgage revenue bonds.
You are, or were, eligible for the District of Columbia first-time homebuyer credit for any year.
Known as the first-time homebuyer credit, the tax break is available if you purchase a home on or after April 9, 2008 and before July 1, 2009, and meet certain income and other requirements.
The credit is equal to 10 percent of the home purchase price, up to a limit of $7,500.
Unlike other tax credits, this one must be paid back to the government, over a 15-year period.
Who is considered a "first-time" homebuyer?
Any taxpayer who has never owned a home as a principal residence.
However, you could qualify if you’ve owned a home before, but not as your principal residence during the three years prior to the purchase.
Married couples cannot qualify for the credit unless both spouses meet the three-year rule.
What qualifies as a principal residence?
Your principal residence is where you live for most of the year. That can be a house, a condo, co-op, house trailer or houseboat, within the United States. Vacation and rental homes are not eligible.
What are the income limitations?
For single taxpayers, the credit decreases as modified adjusted gross income rises above $75,000, and it disappears altogether above $95,000. For example, if your income is $85,000, you could receive a credit worth no more than $3,750.
Modified adjusted gross income is your adjusted gross income, or AGI (your gross income minus certain deductions such as IRAs and alimony) with tax-free foreign income counted.
For married couples, the credit starts to decrease at modified adjusted gross of $150,000 and disappears after $170,000.
When would I get the money from the credit?
You get the money only after you claim the credit on either your 2008 or 2009 tax return, NOT when escrow closes on the home.
However, you can speed up the process if you buy a home in 2009, prior to July 1. Instead of waiting until you file your taxes in 2010, you can (after Dec. 31, 2008) treat the purchase as if it were completed in 2008. That means you can amend your 2008 return and get the credit in 2009.
How does the credit affect the taxes I owe and the refund I get?
The credit reduces your tax liability, that is, the amount of taxes you are required to pay. Depending on your tax withholdings, you could get a bigger refund or owe less in taxes when you file.
If, for example, your taxes owed for one year are $6,000, you’ve had $4,000 withheld from your wages, and you buy a home worth $100,000, the housing credit would entitle you to a refund, as shown below.
Tax liability $6,000
Minus housing credit -7,500
Minus withholding -4,000
Refund $5,500
But if, for example, your tax liability was $10,000, but you had paid no withholding, then the credit would reduce the taxes you owe, as ilustrated below.
Tax Liability $10,000
Minus housing credit - 7,500
Minus withholding 0
Taxes due $2,500
How do I repay the credit?
You start repaying the credit in the second year after the tax year that the home was purchased.
So if you took the credit on your 2008 tax return, you begin repayment when you file your 2010 tax return. Your payments are set at $500 per year for 15 years.
They are “paid” as part of your tax liability. Depending on your tax situation, you either get $500 less on your refund each year, or you owe $500 more in taxes.
You might need to increase your withholding or make quarterly estimated payments to cover for the repayment and ensure that you don't get penalized for under-withholding.
What if circumstances change?
If you sell the house before the end of 15 years, you will have to pay the balance remaining on the credit on the tax return for the year the house was sold.
If you no longer use the home as your principal residence (say you rent it out), you pay the remaining balance on the tax return for the year the use changed.
If you die before the 15 years, the balance does not need to be repaid.
If you get a divorce and the home is transferred to your spouse, your spouse will be responsible for future payments.
Other considerations
The credit is not available if:
You buy your home from a close relatives, such as your spouse, parents, grandparent, child or grandchild.
Your home financing comes from tax-exempt mortgage revenue bonds.
You are, or were, eligible for the District of Columbia first-time homebuyer credit for any year.
Mortgage Rates Take a Big Dip This Week
Daily Real Estate News December 5, 2008
For the week ended Dec. 3, Freddie Mac reported the lowest interest on 30-year fixed home loans since late January. The rate came in at an average of 5.53 percent, down from 5.97 percent the previous week and 5.96 percent a year ago; while 15-year fixed mortgages settled at 5.33 percent compared to 5.74 percent last week and 5.65 percent in the year-earlier period. Borrowing costs for short-term loans also were lower, with one-year adjustable-rate mortgages dipping to 5.02 percent from 5.18 percent a week ago and 5.46 percent a year ago.
Five-year hybrid ARMs, meanwhile, fell to 5.77 percent from 5.86 percent last week and 5.75 percent during the same period of last year.
Source: Realty Times (12/05/08)
For the week ended Dec. 3, Freddie Mac reported the lowest interest on 30-year fixed home loans since late January. The rate came in at an average of 5.53 percent, down from 5.97 percent the previous week and 5.96 percent a year ago; while 15-year fixed mortgages settled at 5.33 percent compared to 5.74 percent last week and 5.65 percent in the year-earlier period. Borrowing costs for short-term loans also were lower, with one-year adjustable-rate mortgages dipping to 5.02 percent from 5.18 percent a week ago and 5.46 percent a year ago.
Five-year hybrid ARMs, meanwhile, fell to 5.77 percent from 5.86 percent last week and 5.75 percent during the same period of last year.
Source: Realty Times (12/05/08)
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