Tag Archives: interest rates

Real Estate

Pending Home Sales Highest Level Since Late 2006

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Pending home sales rose in May to the highest level since late 2006, implying a possible spark as mortgage interest rates began to rise, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2; the data reflect contracts but not closings.

Contract activity is at the strongest pace since December 2006 when it reached 112.8; pending sales have been above year-ago levels for the past 25 months.

Lawrence Yun, NAR chief economist, said there may be a fence-jumping effect.  “Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” he said.  “This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.”

Yun upgraded the price forecast for 2013, with the national median existing-home price expected to rise more than 10 percent to nearly $195,000.  This would be the strongest increase since 2005 when the median increased 12.4 percent.

Existing-home sales are projected to increase 8.5 to 9.0 percent, reaching about 5.07 million in 2013, the highest in seven years; it would be slightly above the 5.03 million total recorded in 2007.

The PHSI in the Northeast was unchanged at 92.3 in May but is 14.3 percent above a year ago.  In the Midwest the index jumped 10.2 percent to 115.5 in May and is 22.2 percent higher than May 2012.  Pending home sales in the South rose 2.8 percent to an index of 121.8 in May and are 12.3 percent above a year ago.  The index in the West jumped 16.0 percent in May to 109.7, but with limited inventory is only 1.1 percent above May 2012.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.  For additional commentary and consumer information, visit www.houselogic.com and http://retradio.com.

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*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales.  In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.  By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.

Source: National Association of Realtors®.

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Real Estate

Pending Home Sales at Strongest Pace Since 2006

 

Photo credit: http://look-estates.com/
Photo credit: http://look-estates.com/

Pending home sales rose in May to the highest level since late 2006, implying a possible spark as mortgage interest rates began to rise, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2. Contract activity is at its strongest pace since December 2006, when it reached 112.8. Also, pending sales have been above year-ago levels for the past 25 months.

Lawrence Yun, NAR chief economist, said there may be a fence-jumping effect.  “Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” he said.  “This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.”

Regionally, the index went unchaged in the Northeast, but is 14.3 percent above a year ago.  In the Midwest, it jumped 10.2 percent to 115.5 in May and is 22.2 percent higher than May 2012.  Pending home sales in the South rose 2.8 percent and 16 percent in the West.

Source: NAR

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Real Estate

When an Adjustable-rate Mortgage Makes Sense

Photo credit Cleveland Seniors www.http://www.clevelandseniors.com/forever/headlines.htm
Photo credit Cleveland Seniors www.http://www.clevelandseniors.com/

 

When the housing market began declining, many people claimed that adjustable-rate mortgages (ARMs) were the cause.  However, recently they’ve been making a comeback, especially among affluent borrowers

  • An ARM offers an introductory period in which the borrower pays a lower interest rate than with a fixed loan; after that, the rate can fluctuate up or down.
  • With rates near historic lows, the safety of locking in a fixed-rate appeals to many borrowers.  But these borrowers are paying a premium for that security.  The spread between rates on 30-year fixed-rate mortgages and the most-popular ARMs now stand at about one percentage point, more than double the difference just five years ago.
  • That means that homeowners who are planning to either move or pay off their mortgage over the next few years can save big with an ARM.
  • Borrowers can determine if an ARM is the right loan option for them by looking at their financial situation and the terms of the ARM. ARMs carry risks in periods of rising interest rates, but can be cheaper over a longer term if interest rates decline. An ARM may be a good option to consider for borrowers who plan to own the home for only a few years, expect an increase in future earnings, or the prevailing interest rate for a fixed-rate mortgage is too high.
  • Before deciding to apply for an ARM, borrowers should consider if their income is likely to rise enough to cover higher mortgage payments if interest rates increase; whether they will be taking on other sizable debts such as car loans or school tuition in the near future; how long they plan to own the home; and whether their mortgage payments can increase even if interest rates generally do not increase.

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Real Estate

Online Mortgage Shopping Made Easier

Moss on Rocks Photo by John J. O'Dell
Moss on Rocks Photo by John J. O'Dell


The vast amount of information available online about mortgages – such as interest rates, loan benchmarks, prepayment penalties, and the like – can cause home buyers to feel confused and overwhelmed when shopping for a mortgage.  Most surprisingly, a recent survey found that only 61 percent of homeowners surveyed said they comparison shopped for a mortgage, and 39 percent said they took out a home loan based on just one quote.

MAKING SENSE OF THE STORY

  • Resulting from consumer feedback about lending Web sites being unhelpful or difficult to navigate, some of the nation’s leading mortgage sites have responded by working to become more consumer-friendly.  The revamped sites allow borrowers to not only browse lender rates and terms, but also learn about market trends and read comments from other loan shoppers.
  • One of the challenges borrowers have, according to Keith T. Gumbinger, the vice president of HSH Association, is that while there is plenty of mortgage information available, consumers often have difficulty understanding the technical aspects of a mortgage, such as when an adjustable rate mortgage actually adjusts, and when a prepayment penalty applies.
  • One site, LendingTree, allows consumers to browse quotes from various lenders, read an array of industry articles, use research tools and calculators, and peruse consumer-generated ratings and reviews of lenders.  In December, the company created an online feature in which borrowers can post a mortgage-related question to be answered by a LendingTree loan specialist.
  • Online direct lender, Quicken Loans, offers an expanding number of customer-written reviews on buying and refinancing.  Beginning in March, consumers can download Quicken Loan’s iPhone app and track when appraisals come in, closing dates are set, and when other time-sensitive hurdles in the home-buying process are reached.
  • Some major lenders also are making changes, including Bank of America, which offers articles and tools specifically for first-time buyers, and another set for more experienced borrowers.
  • Of course, borrowers also can forgo the online aspect of mortgage shopping, and instead work with an experienced mortgage broker who can help guide the buyer through the process, including locking in the best rates available for their situation.

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Real Estate

Nabbing a Bargain-Basement Mortgage Before Rates Rise

The Federal Reserve has been purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac since early last year.  The purchase program has helped maintain low interest rates for borrowers.  As planned, the Fed this week announced it will stop purchasing these securities at the end of this month.  Many analysts anticipate this will result in a slight rise in rates by year’s end.

Making sense of the story for consumers

  • Interest rates have hovered at or near historic lows for much of the past 18 months, resulting in lower payments for many borrowers.  With the Fed discontinuing its purchase program, some analysts believe a rise in interest rates could range from 0.25 percent to as much as 1 percent by the end of 2010.
  • The federal tax credit for home buyers also is scheduled to end April 30.  The tax credit combined with the expectation interest rates will increase has created a sense of urgency for many home buyers.  In fact, 23 percent of California home buyers purchased a home in 2009 due to the perception that interest rates will rise and they would be priced out of the market, according to C.A.R.’s 2009 Survey of California Home Buyers.
  • Rising interest rates will have an effect on home buyers.  For example, a qualified couple with a combined pretax income of $100,000 per year and debt obligations (excluding mortgage) of $500 who receive a mortgage rate of 5 percent could qualify for a loan of up to $590,000, assuming a 20 percent down payment.  If the interest rate were to rise to 6 percent, as analysts at Barclays Capital predict, the same couple could only qualify for a mortgage of $540,000.

So in short, now is the time to buy real estate while home prices and interest rates are low.

John J. O’Dell
Real Estate Broker

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Real Estate

Mortgage Rates Drops to Near-Record Lows

moneyhouse

Mortgage rates are dropping to near record lows – below 5%. This is in the wake of the Federal Reserve’s decision to buy up Treasury bonds and mortgage securities. Lower rates may help spur home sales, but analysts expect much of the action to come from homeowners seeking to refinance.

If you are in the category of refinancing, expect tighter rules and regulations, meaning you have to have a good credit score, equity in your home and there will be tighter debt to income ratio requirements. Keith Gumbinger of HSH Associates, a publisher of mortgage information, said good interest rates were available to all kinds of borrowers in all kinds of credit circumstances when the market was running flat out five years ago. That’s not the case today. “You must be a much better borrower than you had to be before,” he said. “For some borrowers, you might have to get used to hearing ‘no.’”

Be careful when you apply for your refinancing. I have a client who is in the process of refinancing her home. She applied at Countrywide and had me look at what they were going to charge her to refinance. They started out with 2 points or 2 percent of her loan to as part of the cost for refinancing. In addition, they had enough garbage fees that the total refinancing would have cost her $11,000 for a $417,000 loan. I had her shop at two other loan companies, and her costs dropped to about $6,000. Countrywide, when they were made aware of the pricing from the other two mortgage brokers, dropped their cost to refinance to match the other two brokers.

Home buyers and owners who want to refinance should be prepared for a longer process, and for different rates or costs, depending on their credit scores and loan-to-value ratios. Now, there might be three or four different levels for transactions that previously would have been priced equally.

By the way, after April 27, 2009 Countrywide will shed its name that it had since 1969 and will be morph into Bank of America Home Loans. Bank of American acquired Countrywide, once one of the biggest subprime lenders last year. More on Countrywide tomorrow