Weekly Mortgage and Real Estate Report – Week of September 26, 2016

What the Fed SaidAfter much speculation on both sides, the Federal Reserve Board’s Open Market Committee met last week and made their decision regarding interest rates. The markets experienced significant volatility leading up to the meeting as stocks pulled back, interest rates rose and oil prices fell. With the volatility, none of these moves came in a straight line, especially with regard to the stock market.

As we have previously noted, the markets often start bouncing back from their pre-meeting movements as the event gets closer. This time the markets stabilized somewhat before the meeting and, immediately after the meeting, we saw a moderate rally in stocks and a moderate drop in long-term rates. Why the subdued reaction? Even though the Fed declined to raise rates, there were three votes in dissention. The markets initially interpreted these votes as an indication that the Fed is moving closer to raising rates, most likely at their December meeting.

On the other hand, according to the New York Times — Chairwoman Janet Yellen, said she saw no reason to rush. “The economy keeps bubbling along without boiling over. We are generally pleased with how the economy is doing,” she said at the news conference after the meeting. “The economy has a little more room to run than might have previously been thought. That’s good news.” Thus, while the economy is growing moderately without exacerbating inflation, there are some who think the Fed is waiting too long to make a move, including some members of the organization.

  Borrowers who use the U.S. Department of Agriculture’s Rural Housing Service to get a home loan could soon pay significantly less for their loan, as the USDA announced that it is about to cut its loan fees for lenders who use the USDA’s Single Family Housing Loan Guarantee Program. In an announcement sent to lenders, the USDA said that it is cutting its fees beginning on Oct. 1, 2016, the first day of fiscal year 2017. According to the announcement, the USDA is set to cut its upfront guarantee fee from 2.75% of the loan-at-close amount to 1%. Additionally, the USDA is cutting its annual fee from reduced from 0.50% of the unpaid principal loan balance to 0.35%. So, what’s the reason for the cut? Better borrower performance, according to a USDA official. According to the official, the USDA is able to cut its upfront and annual fees because borrower delinquency and foreclosure rates have reached “historic lows” since the beginning of the housing crisis. Additionally, the official said that successful partnerships between the USDA and the lenders who participate in its loan programs have resulted in “very strong” performance within this program. “When our borrowers succeed, the program succeeds,” USDA Rural Housing Service Administrator Tony Hernandez said in a statement provided to HousingWire. “Excellent overall performance in our Single Family Housing Guaranteed Loan Program means we can charge less for the life-changing opportunity to own a home.” Source: HousingWire Many older adults say they want to stay put in their homes as they age. But how many older adults will actually be able to do so is another question. Indeed, “a recent AARP study … showed that 71 percent of 50 to 64 year olds want to stay in their homes and their current communities,” says Rodney Harrell, director of Livability Thought Leadership at AARP. “But communities as we build them often don’t have the options that people need to age well. The idea of a livable community is one that has housing, transportation, and other options that allow people to stay and thrive in their homes.” AARP has launched a Livability Index to help older adults search for the right home. It factors in seven categories of livability in judging neighborhoods, including housing, transportation, environment, health, engagement, and more. If people do desire to age in place, they must carefully assess a home when they buy in the first place whether it will meet their needs as they grow older and under several scenarios too. “If you are on that cul de sac and your spouse has passed, your kids live elsewhere and your income is much lower and you are no longer driving, then suddenly that dream house, which wasn’t planned for long term, is isolating,” says Harrell. “You may no longer be able to access the second floor and the functionality and usefulness of the house is suddenly gone.” Source: BUILDER

In a data analysis that may give the Property Brothers heartburn, Zillow has number crunched the financial considerations surrounding fixer-upper homes and has determined that they rarely offer a significant value. In a national analysis of 70,000 listings for fixer-uppers, Zillow has concluded that fixer-upper homes list for a mere eight percent less than market value, which for the median fixer-upper would save buyers only $11,000 for renovations. In some areas, the savings are miniscule, while in pricier real estate markets buyers see a greater cash savings. “Fixer-uppers can be a great deal, and they allow buyers to incorporate their personal style into a home while renovating, but it’s still a good idea to do the math before making the leap,” said Svenja Gudell, Zillow chief economist. “While an 8 percent discount or $11,000 in upfront savings on a fixer-upper is certainly a good chunk of change, it likely won’t be enough to cover a kitchen remodel, let alone structural updates like a new roof or plumbing, which many of these properties may require.” Source: National Mortgage Professional


Weekly Mortgage and Real Estate Report – Week of September 19, 2016

Typical JittersSeems like it happens often when a meeting of the Federal Reserve Board is coming. The markets analyze all the data, and declare that the rate hike is not likely. Then the closer we get to the meeting, the more the markets get jittery by thinking that a rate hike may take place anyway. This seems to be what happened to the stock and bond markets starting just under two weeks before the meeting, with stocks taking a dive while interest rates increased.

Why do we say that this is just market jitters, and not for some other fundamental reason? Because on a typical day in which stocks go down, interest rates will also decrease. For example, if there were a major economic or political shock across the globe causing stocks to tumble, investors would be buying bonds as a safe haven. Thus, we believe that we have typical “pre-Fed meeting” market nervousness. The good news about this nervousness? Often the markets recover even before the meeting takes place, though sometimes the recovery takes place afterwards.

What if the Fed does raise rates? Then it is possible that the markets may rebound a bit because they have already taken this action into account. Keep in mind two things: First, the markets continue to believe that the rate hike is less probable — even though there is some concern because the Fed is not likely to act at the next meeting which is right before the election. Second, even when the Fed raised rates in December, the markets recovered quite nicely, even after a rough start to the year. Thus, just because the market’s jitters are based upon reality, this does not necessarily preclude a good finish to the year.

  The “starter home” trend may be fading in real estate. Prior to the housing bubble, first-time buyers with average incomes would shop for a more affordable, smaller house with the idea of moving on to a larger home in a few years. Today’s first-time buyers want a home that meets their needs now and in the future. Seventy-five percent of first-time buyers say they prefer to skip the starter home and find a house that meets their long-term needs, according to a recent survey. Thirty-five percent say they even intend to stay in that home until they retire. First-time buyers nowadays tend to be higher earners, due to rising home prices and tighter housing inventories. As such, these higher earners desire fancier homes. In 2013, first-time buyers purchased homes with an average of 1,845 square feet. Meanwhile, the average home in the U.S. is just 1,819 square feet, according to BuildZoom’s analysis of data from the Census Bureau. “So those home buyers who probably would have been looking for the lowest-end homes 10 years ago during the housing boom are today just not able to buy. And those that are able to buy are looking further upmarket,” says Issi Romem, chief economist for BuildZoom. Many first-time buyers aren’t planning to upgrade and move on in five years, like they once did. They plan to stay put. “When they do purchase, they’re planning on living there longer than buyers that we’ve seen in the past,” says Jessica Lautz, NAR’s managing director of survey research. “They’re expecting to live there 10 years.” Source: USA TodayColumnist Jeff Reeves with MarketWatch says right now is the best time ever to invest in real estate. He says bubble fears amount to “a lot of hogwash.” “Whether it’s stricter lending standards, a shift in attitudes among borrowers or simply the nation getting wiser about the risks of real estate, we’re hardly seeing irresponsible buying in 2016,” writes Reeves, who is also the editor of InvestorPlace.com. “What we are seeing is a healthy housing market that continues to steadily and organically appreciate.” As such, he says it’s prime time for investors to jump in. Home prices are on the rise and median home prices are above pre-recession levels and even reaching new highs in some locales. Appreciation is growing about 5 percent each year. “Nobody should put all their savings into one or two properties. But, in a diversified portfolio, there is a very good argument for real estate investments in 2016,” writes Reeves. Source: MarketWatch

Young adults aged 18 to 34 are more likely to live with a parent than in any other arrangement for the first time since 1880, the Pew Research Center recently reported. But researchers have found a somewhat surprising segment of the millennial population more likely to be staying in their parent’s basement. Pew reports it’s mostly older, male millennials without a college degree who are contributing to the record numbers. While the youngest of today’s adults are still the most likely to live with their parents, the numbers show a growing number of older millennials are moving back in. For example, 25 percent of people ages 25 to 29 are living with a parent, up from 18 percent 10 years ago. What’s more, 13 percent of Americans ages 30 to 34 are living with their parents, up from 9 percent a decade ago. Richard Fry with the Pew Research Center says, “These trends could have larger implications for future economic growth and financial stability, as housing represents over 60 percent of assets held by the middle class and roughly 15 percent of the gross domestic product. Since the share of 25- to 34-year-olds living with a parent has been steadily rising since reaching its lowest point 45 years ago, it may be years until we experience the full significance of these new living arrangements. With its potential impact on the economy, though, it’s a trend we may not be able to ignore.”Source: The Washington Post

Weekly Mortgage and Real Estate Report – Week of September 12, 2016

The Fed Meeting Next WeekThe initial reaction with regard to the slightly disappointing August jobs numbers, was speculation that a rate hike was less likely to result from the meeting of the Federal Reserve Board’s Open Market Committee next week. Keep in mind that many are speculating that the Fed will be reticent to take any actions at the following meeting, which takes place a few days before the Presidential election. The Fed is not likely to admit that the date of an election would be reason to hold off on taking necessary fiscal action, but logic tells us that the Fed will not want to be perceived as having any influence in the political process, speculative or not.

If we are correct in this assumption, the Fed might look long and hard at their meeting next week, if indeed their next chance to raise rates will be in December. And if that happens, that will mean the Fed will have raised rates two Decembers in a row. Certainly, this schedule would fit the definition of “gradual” rate increases, which we have been hearing about for quite some time.

Though we can’t predict what will happen next week, let alone at the next two meetings, we can say that a lot can happen between now and December, including some sort of shock which influences the economy. Shocks can take the form of natural disasters, political upheaval, terrorist activity or more. And history tells us that shocks typically affect the economy negatively. Thus, if the Fed does not move next week, they will need to see continued improvement in the economy and no major shocks which provide risks to the downside.


The Markets. Rates continued to hold steady near record lows in the past week, staying in the same range for almost three months. For the week ending September 1, Freddie Mac announced that 30-year fixed rates were at 3.44%, moving slightly down from 3.46% the week before. The average for 15-year loans fell one tick to 2.76% and the average for five-year adjustables decreased to 2.81%. A year ago, 30-year fixed rates were at 3.90%, almost one-half of one percent higher than today’s levels. Attributed to Sean Becketti, Chief Economist, Freddie Mac –“The rate on 30-year fixed home loans fell 2 basis points to 3.44 percent this week. As rates continue to range between 3.41 and 3.48 percent, many are taking advantage of the historically low rates by refinancing. Since the Brexit vote, the refinance share of residential finance activity has remained above 60 percent.”  Note: 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 September 9, 2016
Daily Value Monthly Value
Sept 8 August
6-month Treasury Security  0.50%  0.45%
1-year Treasury Security  0.57%  0.57%
3-year Treasury Security  0.91%  0.85%
5-year Treasury Security  1.19%  1.13%
10-year Treasury Security  1.61%  1.56%
12-month LIBOR  1.557% (Aug)
12-month MTA  0.523% (Aug)
11th District Cost of Funds  0.693% (July)
Prime Rate  3.50% (Dec)
  Are you or is someone you know needlessly missing the action, leaving near-historically low money on the table? You might be, if you fit this profile:

  • You’re renting, although your goal is to buy a home. You assume you can’t qualify for a home loan because today’s underwriting rules are so strict and inflexible.
  • You don’t have a lot of extra cash in the bank, and you doubt that you could scrape together enough money for a down payment.
  • Your credit scores aren’t great — just under 700 FICO — but that’s mainly because you’re young and don’t have a deep credit history.

Sound familiar? Well, here’s good news. Giant mortgage investors Fannie Mae and Freddie Mac have low-down-payment plans known as HomeReady and Home Possible Advantage. Either one could be key to your getting out of your rental apartment and buying a house or condo sooner than you think. Check out the basics of Fannie’s program: Start with the 3 percent down payment. There’s no minimum cash contribution requirement out of your wallet. You can supplement your cash on hand with gifts from relatives or other sources. You can also increase your effective income for qualification purposes by including so-called “boarder” or in-house rental payments. Another point of flexibility: Say you are part of an extended family, and there will be other household members living in the house with you who earn incomes but don’t want to be a co-borrower. You can use their documented earnings to increase the maximum debt-to-income ratio (DTI) you’re allowed on your loan. As you might suspect, that kind of underwriting flexibility comes with some requirements. HomeReady and Home Possible Advantage are targeted at moderate-income primary residence buyers — first-timers, minority purchasers, extended family groups and other “underserved” borrowers — so not everybody can participate. In designated low-income census tracts, there is no income limitation. Both programs also require some form of homeownership credit education: either an online course or, under Fannie’s latest version, counseling sessions with any of a network of housing counselors around the country. Source: Ken Harney, The Nation’s Housing

Americans want bigger houses. Or at least that’s what they’re getting. The median size of a new single-family house was 2,467 square feet last year, the biggest on record, according to recently released Census Bureau data. With all that floor space, homes are 61% larger than the median from 40 years earlier and 11% larger than a decade earlier. “McMansion” may not be a popular term post-housing bust. But American homes have not only been getting larger, they’re also including more bathrooms and amenities such as air conditioning. Some 93% of new houses had air conditioning in 2015 compared with 46% in 1975. About 96% of new homes last year had at least two bathrooms versus 60% four decades earlier. That may go some way toward explaining rising prices. The median sales price of a new home was $296,400 last year, according to Census, a new high. Even when adjusted for inflation, new-home prices hit a record last year. Source: The Wall Street Journal

Weekly Mortgage and Real Estate Report – Week of August 5, 2016

The Employment Situation and YellenThe Chairperson of the Board of Governors of the Federal Reserve System, Janet Yellen, recently caused quite a debate in the markets with a recent speech indicating that she believed the case for an increase in the federal funds rate has strengthened in recent months. The debate not only centered around whether a rate increase was justified based upon the strength of the economy, but also when the increase might happen. For example, while the latest data have indicated some strength within areas such as consumer spending, we are still talking about an economy which has grown at a 1.0% annual rate thus far this year.

These types of speeches by the Fed are supposed to contribute to the organization’s transparency so that the markets are not surprised by Fed activity such as increasing rates. More often than not, the statements in these speeches just create confusion, especially when the economy’s performance is as muddled as it is at the present time. Yellen did not say a rate increase was coming this month, but certainly the markets saw the possibility of a September increase on the rise.

Certainly, Friday’s jobs report had the potential to go a long way to clarify the situation. While the numbers were not earth-shattering in either direction, the addition of just over 150,000 jobs was certainly not a strong enough showing to increase the chances for a rate hike this month. The growth in hourly wages was also less than expected and without any evidence of wage inflation, the Fed has more leeway with regard to holding off for now.

  According to the National Association of Realtors®, 25% of primary home buyers are single. Some of these non-married buyers, statistics show, buy homes jointly with other non-married buyers such as boyfriends, girlfriends or partners. If you’re a non-married, joint home buyer, before signing at your closing, you’ll want to protect your interests. Different from married home buyers, non-married buyers get almost no estate-planning protection on the state or federal level which can be, at minimum, an inconvenience and, at worst, result in foreclosure. Thus, the process should start with an experienced real estate attorney to draft the following two documents:

  • Cohabitation Agreement
  • Property Agreement

The Cohabitation Agreement is a document which describes each person’s financial obligation to the home. It should include details on which party is responsible for payment of the mortgage, real estate taxes and insurance; the downpayment made on the home; and necessary repairs. It will also describe the disposition of the home in the event of a break-up or death of one party which, unfortunately, can happen. The second document, the Property Agreement, describes the physical property which you may accumulate while living together, and its disposition if one or both parties decide to move out. A well-drafted Property Agreement will address furniture and appliances, plus other items brought into the joint household, and any items accumulated during the period of co-habitation. Source: The Mortgage Reports

Consumers took full advantage of extremely low interest rates and continued monetary policy inaction from the Federal Reserve in July, as new home sales unexpectedly soared to their highest point since October 2007, according to a report published by the Census Bureau. Sales of new single-family homes in July clocked in at an impressive annualized rate of 654,000 – up 12.4 percent over the month and 31.3 percent over the year. Analysts had actually expected a slight downtick in sales over the month, due mostly to strong performance in June and a general shortage of new housing options on the market. “July’s surge in new home sales continues to support the sentiment that demand for homes is strong despite homebuyers facing low existing inventory,” Ralph McLaughlin, chief economist at real estate hub Trulia, wrote in a research note. Home sales were likely bolstered by interest rates that plummeted to near-record lows in July, shortly after the United Kingdom announced its Brexit vote. In the financial market chaos that ensued, investors flocked to U.S. assets that were generally considered safe from volatility, like mortgage-backed securities. Source: US News and World Report