Mortgage Business

The Federal Reserve Board Speaks

20140309-080351.jpgAs we indicated in previous weeks, the volatile market environment of the month of October made the timing of the meeting of the Federal Reserve Board’s Federal Open Market Committee last week very interesting. With the stock market gyrating and interest rates and oil prices falling in light of world events, certainly there was concern. Yet, the domestic economic news has been anything but negative, with housing starts and existing home sales rising and more jobs being created. Last week, the preliminary measure of economic growth for the third quarter was also released showing a solid 3.5% gain, but subject to future revisions.

Indeed, one would have thought these conflicting factors would provide some confusion for the Fed heading into the meeting, though the markets seemed to be optimistic coming up on the meeting as the stock market recovered a good portion of its losses of the past month. There was nothing surprising or confusing about the Fed statement. They are ending their bond purchase program as scheduled and continued to use the term “considerable time” with regard to how long they will keep rates low. They did insert language that they reserve the right to shorten that period if the economy, and especially employment growth, improves more quickly than anticipated.

Meanwhile, speaking of jobs, we move from the Fed announcement to the release of the all-important jobs data this week. Last month we had one of the best months for job creation since the great recession and as the month wore on, we have seen weekly first time claims for unemployment move to their lowest levels in almost a decade. This has made many analysts confident about the results coming on Friday. One thing we know about the jobs data — it can be very volatile and subject to future revisions. One should always brace for a surprise in either direction which could cause more market volatility. We are not saying it will happen, but always consider the possibility.

The Markets. Rates rebounded in the past week but stayed near their lows for the year. Freddie Mac announced that for the week ending October 30, 30-year fixed rates rose to 3.98% from 3.92% the week before. The average for 15-year loans increased to 3.13%. Adjustables were also higher, with the average for one-year adjustables moving to 2.43% and five-year adjustables increasing to 2.94%. A year ago, 30-year fixed rates were at 4.10%, higher than today’s levels. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans rose across the board this week, rebounding from the lowest rates of the year. New home sales grew at an annual rate of 467,000 sales in September, the fastest rate observed during the recovery. Mea nwhile, the National S&P Case-Shiller House Price Index grew at a seasonally adjusted annual rate of 0.4 percent in August.” 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 October 31, 2014

Daily Value Monthly Value
October 30 September
6-month Treasury Security 0.06%  0.04%
1-year Treasury Security 0.11%  0.11%
3-year Treasury Security 0.91%  1.05%
5-year Treasury Security 1.58%  1.77%
10-year Treasury Security 2.32%  2.53%
12-month LIBOR  0.578% (Sept)
12-month MTA  0.115% (Sept)
11th District Cost of Funds  0.667% (Aug)
Prime Rate  3.25%

Can you still do a short-term house flip using federally insured, low-down payment housing finance money? That’s an important question for buyers, sellers, investors and realty agents who’ve taken part in a nationwide wave of renovations and quick resales using Federal Housing Administration-backed loans during the last four years. The answer is yes — you can still flip and finance short term. But get your rehabs done soon. The federal agency whose policy change in 2010 made tens of thousands of quick flips possible — and helped large numbers of first-time and minority buyers with moderate incomes acquire a home — is about to shut down the program, FHA officials have confirmed. In an effort to stimulate repairs and sales in neighborhoods hard hit by the housing crisis and recession, the FHA waived its standard prohibition against financing short-term house flips. Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping it — to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a buyer using an FHA residential loan — provided that you followed guidelines designed to protect consumers. Since then, according to FHA estimates, about 102,000 homes have been renovated and resold using the waiver. The reason for the upcoming termination? The program has done its job , stimulated billions of dollars of investments, stabilized prices and provided homes for families who were often newcomers to ownership. However, even though the waiver program has functioned well, officials say, inherent dangers exist when there are no minimum ownership periods for flippers. In the 1990s, the FHA witnessed this firsthand when teams of con artists began buying run-down houses, slapped a little paint on the exterior and resold them within days — using fraudulent appraisals. Their buyers, who obtained FHA-backed loans, often couldn’t afford the payments and defaulted. For these reasons, officials say, it’s time to revert to the more restrictive anti-quick-flip rules that prevailed before the waiver: The 90-day standard will come back into effect after Dec. 31. Paul Wylie, a member of an investor group in the Los Angeles area, says he sees “more harm than good by not extending the waiver. There are protections built into the program that have served [the FHA] well,” he said in an email, “Entry-level consumers will be harmed unnecessarily.” Bottom line: Whether fix-up investors like it or not, the FHA seems dead set on reverting to its pre-bust flipping restrictions. Financing will still be available, but selling prices of the end product — rehabbed houses for moderate-income buyers — are almost certain to be more expensive. Source: Ken Harney, The Nation’s Housing

Existing-home sales bounced back in September, surging to the highest annual pace of the year, according to the latest report from the National Association of Realtors®. Low interest rates and price gains holding steady led to September’s healthy increase, even with investor activity remaining on par with last month’s marked decline,” says Lawrence Yun, NAR’s chief economist. “Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline of choices due to the fact that inventory generally falls heading into winter.” Existing-home sales rose 2.4 percent in September, reaching an annual rate of 5.17 million. Sales are at the highest pace of 2014 but remain 1.7 percent below the 5.26 million reported last September, NAR reports. Here is a snapshot of housing indicators for September:

  • Home prices: The median existing-home price was $209,700 in September, 5.6 percent higher than a year ago. It is the 31st consecutive month for year-over-year price gains.
  • Days on market: Homes stayed on the market longer in September — 56 days, compared with 53 days in August. Short sales remained on the market for a median 116 days in September, while foreclosures sold in 59 days. About 35 percent of homes sold in September were on the market for less than a month.
  • Inventory: Total housing inventory dropped 1.3 percent to 2.30 million existing-homes for-sale, representing a 5.3-month supply at the current sales pace. Unsold inventory is 6 percent higher than a year ago.
  • All-cash sales: Sales involving all cash made up 24 percent of transactions in September, down from 33 percent compared to a year prior.
  • Distressed homes: Foreclosures and short sales rose slightly in September to 10 percent, from 8 percent in August. Distressed sales, however, are down from 14 percent a year ago. Foreclosures and short sales in September sold for an average discount of 14 percent below market value. Source: National Association of Realtors

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s