Tag Archives: mortgage rates

Real Estate

Housing Affordability Declines as Interest Rates Go UP

Picture courtesy of http://www.treadstonemortgage.com/
Picture courtesy of http://www.treadstonemortgage.com/

The majority of housing markets remain affordable to the average family, but rising mortgage rates and rising housing prices are causing more families to have to stretch financially, according to Freddie Mac’s U.S. Economic and Housing Market Outlook for December.

“Rising mortgage rates and rising housing prices over the past six months are making it more challenging for the typical family to purchase a home without stretching beyond their means, especially in the Northeast and along the Pacific Coast,” says Frank Nothaft, Freddie Mac’s chief economist. “Like most, we expect mortgage rates to rise over the coming year, so it’s critical we start to see more job gains and income growth in the coming year. This will help to keep payment-to-income ratios in balance — an important factor not only for first-time buyers but for sustaining homeownership levels among existing owners.”

According to Freddie Mac’s report, more than 70 percent of the nation’s housing stock remained affordable to the typical family in the third quarter at a 4.4 percent interest rate for a 30-year fixed-rate mortgage. However, that percentage decreases to about 63 percent at a 5 percent mortgage rate;  55 percent at a 6 percent interest rate; and 35 percent at a 7 percent interest rate.

Source: Freddie Mac

 

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Housing Affordability Falls to Five Year Low

Picture courtesy of themetapictures.com
Picture courtesy of themetapicture.com

Housing affordability decreased in the third quarter as home prices and mortgage rates were on the rise and put housing out of reach for more families, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

NAHB’s index showed that 64.5 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the nationwide median income of $64,400. That represents a drop from 69.3 percent in the second quarter, and marks the largest index drop since the second quarter of 2004.

“Housing affordability is being negatively affected by a ‘perfect storm’ scenario,” says NAHB Chairman Rick Judson. “With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots, and labor.”

While housing affordability has fallen since its peak in early 2012, NAHB Chief Economist David Crowe says that a family earning a median income can still afford 65 percent of homes recently sold.

The National Association of REALTORS(R) recently reported that housing affordability has fallen to a five-year low as home price increases have outpaced income growth. “Expected rising mortgage rates will further lower affordability in upcoming months,” says Lawrence Yun, NAR’s chief economist.

Most Affordable Markets

Indianapolis-Camel, Ind., and Syracuse, N.Y., tied as the most affordable major housing markets in the country. In both metros, 93.3 percent of all new and existing homes sold in the third quarter were affordable to families earning the areas’ median incomes of $65,100 and $65,800, respectively.

Other major metros ranking high in affordability, according to the index, included:

  • Youngstown-Warren-Boardman, Ohio-Pa.
  • Harrisburg-Carlisle, Pa.
  • Buffalo-Niagara Falls, N.Y.

Least Affordable Housing Markets

Meanwhile, the San Francisco metro area continues to be the priciest housing market in the nation for the fourth consecutive month. Only 16 percent of homes sold in the third quarter were affordable to families earning the area’s median income of $101,200, according to the index.

Other major metros that were among the least affordable in the nation included:

  • Los Angeles-Long Beach-Glendale, Calif.
  • Santa Ana-Anaheim-Irvine, Calif.
  • New York-White Plains-Wayne, N.Y.-N.J.
  • San Jose-Sunnyvale-Santa Clara, Calif.

Source: National Association of Home Builders

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Real Estate

If You Are A Home Buyer, You’ve Missed The Boat on Low Interest Rates

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Mortgage rates and home prices are on the rise, and some home buyers who were waiting around for the housing market to reach bottom are realizing now they may have missed the boat.

Mortgage rates are inching up, with the 30-year fixed-rate mortgage averaging 3.91 percent last week — up from 3.3 percent in early May, according to mortgage giant Freddie Mac.

“It’s unlikely that rates will ever be that low again,” says Doug Duncan, Fannie Mae’s chief economist.

The Fed has been keeping interest rates at record lows by buying up to $85 billion a month in Treasury bonds and mortgage-backed securities, which has helped bolster the housing market.

“Up until recently, expectations were that the Fed would begin to taper purchases of mortgage-backed securities and Treasury bonds late in 2013, but that time frame appears to have moved to September, possibly sooner,” says Keith Gumbinger, vice president of HSH.com, a mortgage information company.

As the economy continues to gain traction, interest rates are expected to continue to increase, Gumbinger says, since low rates often are associated with a distressed economy.

But even if mortgage rates move up a percentage point or two, housing experts note that mortgage rates will still be low by historical standards.

“The 30-year [mortgage rate] hit a 37-year low in 2003 at 5.23 percent,” Gumbinger says. “That was the previous low-watermark prior to this financial crisis, and it’s likely we will move closer to that mark as we grind forward.”

Source: “Why You Missed the Boat On Record-Low Mortgage Rates,” CNNMoney (June 6, 2013)

Please help out to keep this blog going
Let me sell or help you buy your new home or land

Please help out to keep this blog going
Let me sell or help you buy your new home or land

John J. O’Dell Realtor® GRI
O’Dell Realty
(530) 263-1091
Email John

DRE#00669941

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Real Estate

Lots of Home Bargains, But Few Willing Lenders

Bank of America Nevada City Photo by John J. O'Dell
Bank of America Nevada City Closing in 2012 Photo by John J. O'Dell

Faced with finicky lenders, would-be home buyers are increasingly turning to family members, friends, and even strangers they meet online.  While this is understandable, given the abundant bargains on the market, they also present significant risks.

  • So-called peer-to-peer lending sites, such as Prosper and Lending Club, say demand for home-related financing is on the rise.  In September, Weemba, a social-networking site, launched a platform to connect lenders directly with prospective home buyers and other borrowers.
  • Despite historically low mortgage rates, traditional lenders remain reluctant to provide mortgages to anyone with less than stellar credit.  And, in certain markets, lenders are requiring down payments of more than 20 percent of the home’s purchase price.
  • Borrowers taking loans from family members – so-called intrafamily loans – save on interest since family members are likely to charge less than the banks.  Additionally, parent lenders can earn a higher return from their child’s interest payments than they would on a certificate of deposit or money-market fund.  Under federal law, on a loan of more than nine years, parents must charge at least roughly 2.8 percent, in most cases.
  • Consumers who prefer to look for loans beyond the family can apply at peer-to-peer lending sites.  If approved for a loan after a screening by the companies, applicants may then receive money from investors.
  • However, these alternative routes to financing can be expensive for borrowers.  Rates at Lending Club run from around 7 percent to 28 percent.  At Prosper, rates run roughly 7 percent to 35 percent.  The companies say these rates, which are fixed, are higher than traditional mortgage rates in part because their loans are unsecured.

Real Estate

Banks Push Home Buyers to Put Down More Cash

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Many economists and housing analysts blame lax lending standards – including no-down payment, no-document loans – for contributing to the challenges in the current real estate cycle.  As a result, most lending institutions have increased minimum down payment requirements.  Now, a new proposal by the Obama administration calls for gradually raising down payments to a minimum of 10 percent on conventional loans – those that can be bought or guaranteed by Fannie Mae and Freddie Mac.

MAKING SENSE OF THE STORY

  • Banks have found that larger down payments discourage delinquencies by increasing the buyers’ exposure to loss and reducing the impact of declining prices.  According to a study by the Federal Reserve Bank of St. Louis, buyers who made smaller down payments were more likely to default during “unfavorable economic circumstances, such as a housing market slowdown or job loss.”
  • A recent analysis showed the median down payment in nine major U.S. cities rose to 22 percent last year on properties purchased with conventional mortgages.  That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.
  • Higher borrowing costs and larger down payments could cause housing prices to decline further, analysts say.  For now, borrowers who can’t afford such amounts are turning to alternative programs, such as loans for veterans or those backed by the Federal Housing Administration.  Some industry experts say this has created a nonconventional mortgage market for riskier borrowers and those who don’t qualify for conventional loans.

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Real Estate

Uncharted Waters for Home Mortgage Interest Rates

Just as we are getting some signs of stabilization in the housing market, we are charting into unknown waters starting next week. The Federal Reserve will end its purchase of mortgage securities this week. This could mean that mortgage rates will rise and put a damper on home sales.

However, it’s expected that private investors will step in to buy mortgage securities. If they do, analysts expect they will rise less than a quarter of a percentage point in the next three months. That gain would increase a monthly payment on a $250,000 mortgage by $30.

In a statement released March 12, Freddie Mac predicted that mortgage rates would average 5.2 percent on a 30-year fixed loan after the Fed stops buying. Fannie Mae put the rate slightly higher at 5.13 percent.

We’ll have to see what happens in the next few weeks as we go through this transition of selling mortgage securities and how it will affect mortgage interest rates.

John J. O’Dell
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