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Mortgage Rates Slightly Higher

Mortgage rates moved slightly higher after a strong run to the lowest levels of the year as of last Friday.  In general, financial markets moved toward safer investments (like bonds) heading into the weekend.  When demand for bonds increases, rates move lower.  As the new week got underway, market participants warmed back up to the notion of risk, thus undoing some of the positivity from late last week.

Investors are curious to hear what President Trump has to say at his "address of the joint session" tomorrow night, especially after today's promise that there would be big announcements on infrastructure spending.  Markets have been eager to get more clarity on fiscal programs.  If the details are well-received, we could continue to see  more momentum toward risk, and rates could continue to move higher.

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CoreLogic’s Case For Improving Property Tax Estimates

The Truth-in-Lending/RESPA (TRID) rules implemented in late 2015 have placed increased pressure on the accurate forecasting of estimation of non-mortgage related costs for the loan estimates that must be provided to borrowers.  Dom Lalisse, CoreLogic's Director of Product Management, says this is especially problematic for property tax amounts.  He likens the current methods to the days, pre-standardization of credit scores and credit reports, when the determination of credit worthiness was more art than science and relied on "specialized knowledge and personal interpretation of financial information."

Writing in the February edition of CoreLogic's MarketPulse, Lalisse works to make a case for a change in the system.  

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Highest Home-Buying Demand in Years Stifled by Tight Inventory

Tight inventories are again being blamed for a downturn in home sales, this time January's ones.  The National Association of Realtor's® (NAR's) Pending Home Sale Index (PHSI) declined by 2.8 percent from December, reaching the lowest level in a year.  The PHSI is a forward-looking indicator based on signed contracts for home purchases.  Those contracts are generally expected to turn into completed sales in about 60 days.

The January PHSI dipped to 106.4 from an upwardly revised 109.5 in December.  The December index had originally been reported at 109.0.  The index remains 0.4 percent higher than it was in January 2016, but is at the lowest level since then.

This index is beginning to exhibit the same kind of volatility that has marked new home sales in recent months. The index gained 1.6 percent in December, only partially recovering from a 2.5 percent downturn in November.

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Mortgage Rates in Line With 2017 Lows

Mortgage rates moved lower for 3rd straight day (and the 5th time in the past 6 days).  That makes this the best winning streak of the year and it brings rates to the lowest levels of the year (matching February 8th and a few days in early January).  From here, you'd have to go back to mid-November 2016 to see appreciably lower rates.

All that having been said, the range over that time has been fairly narrow--4.125%-4.375% for top tier conventional 30yr fixed rate quotes.  Naturally, today's average lender is at 4.125% although some of the more aggressive lenders are indeed down to 4.0%.  No matter the rate quoted, the important point is that today's rates are noticeably lower than yesterday's.  Even if the NOTE rate is the same, the upfront costs should be lower (thus making for a lower EFFECTIVE rate).

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New Home Sales Up Less Than Expected; Prices up 7.5% Annually

Sales of newly constructed homes, had a strong start in 2016 but flattened out toward the end of the year and ended with a dismal December.  Now 2017 has also started on a positive note.  The Census Bureau and the Department of Housing and Urban Development reported sales were up in January by 3.7 percent from the previous month to a seasonally adjusted annual rate of 555,000 units.  Sales in December, originally estimated at 536,000 unites were revised down to 535,000.  The January sales were 5.5 percent higher than sales a year earlier of 526,000. On a non-seasonally adjusted basis there were 41,000 homes sold during the month compared to 38,000 in December. 

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Fannie Mae’s Blackstone Deal Provokes Blowback

It seemed just an aside in the National Association of Realtors press release regarding January existing home sales.  NAR President William E. Brown, took a shot at the GSE's saying first, "Supply and demand imbalances continue to be burdensome in many markets, and now Fannie Mae is supporting a Wall Street firm's investment in single-family rentals."  Then widening his comment to include Freddie Mac, said, "Instead, the GSEs should lower overly burdensome fees and help qualified borrowers become homeowners."

It turns out there is a little more to the story.

Brown was referring to Fannie Mae's recent decision to back a $1 billion mortgage given to Invitation Homes.  The company, a subsidiary of private equity firm Blackstone, purchased an estimated 48,000 foreclosed single family homes subsequent to the housing crash.  They will service as collateral for the Wells Fargo loan.  Fannie Mae termed the issuance of the guaranty a "pilot program." 

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Inventories Driving Price Gains Despite Rates

Home prices, as measured by the Federal Housing Finance Agency's (FHFA's) Housing Price Index (HPI), rose even faster on an annual basis in December than they had earlier in the fall. The year-over-year gain was 6.2 percent, up from 6.1 percent in the 12 months ended in November, and 6.0 percent in October.

FHFA's HPI report, which this month also in included fourth quarter data, is based on purchase prices of homes with mortgages backed by or sold to one of the two GSEs Fannie Mae and Freddie Mac.

On a quarterly basis, the HPI was up 1.5 percent compared to the third quarter.  The monthly change from November to December was 0.4 percent, down from a 0.5 percent gain from October to November.   

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Mortgage Rates Match 2-Week Lows

Mortgage rates moved lower for the 4th time in 5 days today, bringing them to their lowest levels since February 9th.  The caveat to any discussion of rate "movement," however, is that the changes have been so small that they can really only be measured in terms of closing costs.  

In other words, most borrowers will have seen the same NOTE rate (aka "contract rate," which is simply the interest rate applied to your loan balance).  Contract rates are typically offered in eighth point increments (.125, .25, .375, etc).  "Effective rates," on the other hand, take the upfront costs into consideration.  These costs allow for more of a fine-tuning adjustment when compared to an eighth of a percentage point in contract rate.  

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Urban Institute Asks “What Happened to Black Homeownership?”

The Urban Institute (UI) is asking "What has happened to black homeownership?"  It has "declined to levels not seen since the 1960s when private race-based discrimination was legal."  Like most demographic groups, black Americans saw homeownership gains evaporate during the housing crisis, but that community was hit harder than other groups and have not benefitted as fully from the recovery. 

The authors* of a new UI blog research piece say that, in the three decades following passage of the Fair Housing Act, black homeownership rose by almost 6 percentage points, reaching 47.3 percent, but from 2000 to 2015 the rate dropped to 41.2 percent.  This happened through forces both within and beyond the housing market.  Black homebuyers bought homes at the peak of the bubble at higher rates than whites and Asians and often did so using subprime loans even though they qualified for prime loans. Two percentage points of the 6 percentage point slide happened from 2000 to 2010, the remainder happened in the following five years, three of them while the recovery was underway. White and Hispanic homeownership dropped less from 2000 to 2015, and homeownership rose for people in other racial groups (mainly Asian Americans).

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Interest Rates Taking a Toll on Mortgage Prepayments

Rising interest rates took a toll on mortgage prepayments in January.  Black Knight Financial Services said the pre-payment rate (SMM) was down 29.83 percent compared to December.  Despite the downturn, the rate, 0.95 percent, was still 17.15 percent higher than in January 2016.

The information on prepayment speeds, generally a good indicator of refinance activity, is part of Black Knight's monthly "first look;" advanced information from the company's Mortgage Monitor report on month-end mortgage performance statistics.  The January Monitor will be published by March 6.

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