Mortgage Business

The Aftermath

20140309-080351.jpgWe have had a week to consider the barrage of data released during the last week of the month and the first days of August. The markets were very volatile during this period with the Dow moving from record territory by mid-July to a 2.5% loss in one week and negative territory for the year as of August 1. Other markets moved as well during this period as oil moved down below $100 per barrel the same week and long-term interest rates were also volatile.

Previously we asked why rates are staying so low if it looks like the economy is rebounding. As a matter of fact, one of the reasons the stock market reacted so negatively to the good news regarding the economy is that there was a concern the Federal Reserve Board might raise rates more rapidly than expected. The Fed even noted in its recent announcement that inflation was moving closer to their target numbers. We note that this was just one reason for the negative reaction in the stock market. There were others. For example, there continues to be plenty of political and financial turmoil overseas. Plus, with the Dow and S&P reaching record territory again and again in the first half of the year, the markets could have been due for a correction.

Keep in mind that if the Fed does raise their benchmark rates, short-term rates will rise. But this is no guarantee that long-term rates will also rise. With international turmoil and plenty of negative economic news to balance the overall good reports we have seen, long-term rates are more likely to go up if the markets feel that the Fed is over-stimulating the economy. In other words, the Fed paring down the purchases of Treasuries and Mortgage Backed Securities and talking about raising rates can actually ease the concerns of the markets and keep long-term rates stable. At least for now. The Fed and the markets will be watching the real estate markets closely from here because this is the one area which has been weak and the economy is not likely to overheat while real estate sales continue to be sluggish.


The Markets. Fixed rates rose very slightly in the past week, but stayed in the same range they have been for almost two months now. Freddie Mac announced that for the week ending August 7, 30-year fixed rates rose slightly to 4.14% from 4.12% the week before. The average for 15-year loans ticked up to 3.27%. Adjustables were also stable in the past week, but fell slightly with the average for one-year adjustables easing to 2.35% and five-year adjustables decreasing marginally to 2.98%. A year ago 30-year fixed rates were at 4.40%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac –“Rates on home loans were little changed amid a week of light economic reports. Of the few releases, the ISM non-manufacturing index rose to 58.7 in July from 56.0 a month earlier. Also, factory orders were up 1.1% in June. The two reports signal steady economic growth in the third quarter of the year.”  Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated August 8, 2014

Daily Value Monthly Value
August 7 July
6-month Treasury Security 0.04%  0.06%
1-year Treasury Security 0.11%  0.11%
3-year Treasury Security 0.89%  0.97%
5-year Treasury Security 1.60%  1.70%
10-year Treasury Security 2.43%  2.54%
12-month LIBOR  0.556% (July)
12-month MTA  0.118% (July)
11th District Cost of Funds  0.668% (June)
Prime Rate  3.25%

  If you’ve ever shopped for a house, or are thinking about doing that in the future, then chances are you have thought about mortgage pre-approval at one time or another. What is pre-approval? Why should you get pre-approved? Is it just something lenders cooked up to rope you in? Now that I’ve shopped for and bought a house, I have had the time to research the topic and understand the value and significance of it. There are several advantages to getting pre-approved for a home loan. The first is that by getting your preapproval, you can focus only on houses that are within the range of what the lender will finance for you. Secondly, getting pre-approved gives you a leg up over other potential buyers who are not pre-approved. If two people have put in the same offer on a house, the seller is more likely to go with the person who is pre-approved, knowing that he already has his ducks in a row, and knows what he can afford. From the seller’s perspective, that could make the whole process go more smoothly, with less chance of the buyer backing out because of financing issues. It is also important to note that there is a difference between pre-approval and pre-qualification. Pre-qualification is a very simple process that takes your word for your income and credit and then estimates what the lender would be willing to finance for you. Pre-approval, on the other hand, requires that you submit documentation proving your income, as well as your credit history, giving the bank a more accurate basis on which to pre-approve you. It is best to get a pre-approval before you even start looking for a house. Once you have pre-approval in hand, you’ll know exactly how much the lender will finance for you, as well as the down-payment expectation on such a loan, which will allow you to fully realize the financial responsibility of purchasing a house. Source: Retch Lindow, Market Intelligence Center   Looking to purchase a home in the near future? We can provide a pre-approval so that you can enjoy all of the advantages stated in this article. Just contact us — it is easy to get started. 

The S&P/Case-Shiller home price index, a closely watched measure of home values, posted a 9.3% annual increase in its May reading, down from the 10.8% rate in April. The rate of increase was as high as 13.7% in November before slowing every month since. The good news for homeowners is that the index has now been up every month over the last two years — after posting drops almost every month over the previous five years. And some experts say the current growth is better for the market, because rapid price increases can keep some buyers on the sidelines. “Today’s Case-Shiller data is consistent with the slow glide-path down towards a more normal housing market,” said Stan Humphries, chief economist for real estate Web site Zillow. “Almost across the board, lower-priced homes have been appreciating more quickly than the most expensive homes, a welcome reversal from prior years.” Prices rose in all 20 cities measured by the index, and nine of those markets posted double-digit percentage gains. A drop in foreclosures and unemployment rates and pent-up demand for people who had wanted to buy homes have combined to help lift home prices. A recovery in home sales and prices has been a major driver of the rebound of the U.S. economy so far this year, as the jump in prices has increased household wealth. The price increases and low rates also helped many homeowners refinance and lower their home payments. But even with two years of increases, prices are still 17% below the peak reached at the height of the housing bubble in early 2006. Source: CNN/Money

Baby boomers aren’t showing any signs of leaving the single-family home market that has defined their generation’s real estate habits, despite many predictions that they would by now. As boomers hit age 65 and become empty nesters, many housing analysts forecasted that a huge wave of them would downsize and move into an apartment, condo, or townhouse. But Fannie Mae researcher Patrick Simmons says that isn’t happening yet. “There’s a perception, particularly in many media reports, that this massive generation born between 1946 and 1964 is altering its housing consumption,” Simmons, the director of strategic planning for Fannie Mae’s economic group, told the Chicago Tribune. “It’s true that they’re becoming empty nesters in droves. But by one measure, the proportion of boomers who live in single-family homes actually increased between 2006 and 2012.” Baby boomers’ mobility has gone down. Nine out of 10 boomers surveyed by AARP reported that they wanted to stay in their current home as long as possible. Some boomers could still be underwater and are waiting to recoup more on their house before they sell. Others may be holding on to their home because they snagged a record low rate in recent years, and they know borrowing won’t be any cheaper if they do decide to sell. Some baby boomers are downsizing but choosing to stay in smaller single-family homes rather than move to a condo or townhome. But,”eventually, boomers will slow down with age and have the same physical frailties that their predecessors had,” Simmons told the Tribune. “My sense is that it’s not going to be a major shift — something we see in the numbers in a year. It will likely unfold over a decade or more.” Source: Chicago Tribune

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