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Thursday report indicates housing bottom

25-Jul-08

That’s the opinion posted today by CNBC’s Lawrence Kudlow. The National Association of Realtors reported a 2.6% drop in existing home sales in June and a 15.5% year-over-year drop in sales. Those are the numbers that caught the eyes and fueled the mouths of most of the media Thursday. But according to Kudlow:

inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.

Some specific nuggets of good news: The median home price is up $21,000 from the winter low to $215,000 and has increased for four consecutive months. The Association’s news release on the report pointed out an interesting statistic from an online poll of Realtors - 25% of potential buyers are waiting for an indication that the market has bottomed. That’s a lot of pent up demand ready to push sales back to near record levels as soon as potential buyers regain confidence in the housing market and the general economy.

One thing that may be holding some of those buyers back is the volatility of the mortgage market. The Mortgage Bankers Association reported a drop in new mortgage applications, for both refinances and purchases, as interest rates rose above 6% for both 15-year and 30-year Fixed Rate Mortgages (FRMs) and remained above 7% for 1-year Adjustable Rate Mortgages (ARMs). With adjustable rate loans costing more than fixed rate loans, the 2005-2006 situation of 0% ARMs isn’t just gone, it’s completely turned on its head. The big swings in loan rates, even though fixed rates are at relatively low levels, have to be unnerving to many buyers.

Average Mortgage Rates

30-year FRM: 6.59%, 1.05 points*
15-year FRM: 6.1%, 1.11 points
1-year ARM: 7.16%, 0.29 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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Rates up, mortgage applications up, sales down

10-Jul-08

Despite another week of rising interest rates, mortgage applications increased for both home purchases and refinances last week according to the Mortgage Banker’s Association’s Weekly Mortgage Applications Survey and Tuesday the National Association of Realtors reported that Pending Home Sales fell more than expected in May.

30-year Fixed Rate Mortgage (FRM) rates approached 6.5%, while the 1-year Adjustable Rate Mortgage rate was nearly 7.25%. With this rate structure there is simply no rational reason for anyone to even consider an adjustable rate mortgage - it’s a money losing proposition in every case and carries the added risk of an increase in interest rates in the future. The 15-year FRM was still below 6%, for those who can afford a 15-year amortization (payoff schedule).

The Pending Home Sales index, which Wall Street analysts expected to be at 86.4 fell 4.7% to a reading of 84.7. The April figure was revised upward.

With a market that can best be described as lackluster, the best advice for most homeowners is to hold out for the next 18 months while mortgage markets return to some semblance of normalcy. For those who are in a “must sell” situation before then, finding a solid agent with pre-2000 experience and a knowledge of creative sales technicques is a must. Being open to creative financing while many buyers are still locked out of the mortgage market will also give a leg up.

Average Mortgage Rates

30-year FRM: 6.43%, 1.06 points*
15-year FRM: 5.94%, 1.10 points
1-year ARM: 7.24%, 0.26 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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Mortgage applications rebounding, rates still high

03-Jul-08

Mortgage applications rebounded slightly last week according to the Weekly Mortgage Applications Survey from the Mortgage Bankers Association while interest rates fell slightly for Fixed Rate Mortgages (FRMs). Purchase applications rose 2.8% and refinance applications rose 4.7%. (The report showed a slight increase in 1-year Adjustable Rate Mortgage (ARM) rates, but with a very large drop in points. The data, which show average points paid at only 0.31 look suspect.) The 4-week moving average shows applications declining, but at a slower rate.

A real rebound in mortgage applications isn’t likely unless the 30-year FRM rate drops back very close to 6% or below or economic conditions generally improve. This is a bit of a “Catch 22″, since long term mortgage rates are reflecting the inflation risk caused by low short term interest rates the Federal Reserve is using to juice up the economy. If the Federal Reserve raises short term rates slightly at its August 5 meeting, as some commentators expect, it should help push those long term rates down. That action may also help relieve some pressure on oil prices, which are certainly shaking the confidence of potential home buyers.

Average Mortgage Rates

30-year FRM: 6.33%, 1.09 points*
15-year FRM: 5.9%, 1.02 points
1-year ARM: 7.14%, 0.31 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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Broadest housing indicator showing recovery

27-Jun-08

In a week of bad news for housing, the broadest measure of US national housing activity showed a 2% increase in sales and a 3% increase in median price in May 2008. Several other indicators this week were not as promising. The Case-Shiller Index of housing prices showed a record drop, but measures prices in only the 20 largest metropolitan areas. The Commerce Department’s release of new home sales is a true national indicator and also fell in May, but the existing home market is nine times the size of the new home market. The new home sales numbers have been fluctuating more broadly month-to-month with builders alternating aggressive discounts with less aggressive incentives and are down twice as much as existing home sales on a year-over-year basis.

A view of the San Fernando Valley in Los Angeles, California, from Brand Park in Glendale.

The housing market still has yet to show a month of solid across the board recovery in all measures, but to the extent it’s meaningful to talk about a national housing market the existing home sales recovery is promising. Nationally, the median home price is down 6% from May 2007. This is a meaningful correction that should help sales activity, but still leaves the median price well above the record setting prices for 2000-2005. Regionally, parts of northern California, Florida and Michigan are showing substantial improvement over 2007 sales levels.

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Read more for the full releases on New and Existing Home Sales and the Case-Shiller Index…

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Rates down but mortgage applications fall further

26-Jun-08

Fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) rates both fell last week, but with the 30-year FRM still above six and a quarter percent and the 1-year ARM still above 7 percent, mortgage applications fell another 9.3%. The biggest drop again came in the especially rate sensitive refinance applications which fell 12.1%, while purchase applications fell 7.4%. The Conference Board’s Consumer Confidence Index’s June reading was its fifth lowest level since the survey began. With consumers pressed by record energy prices, some may be reconsidering whether to purchase at all, while others may be thinking about purchasing closer to work rather than in far flung suburban McMansions. Non-housing economic indicators continue to show plenty of strength in the economy generally, so there is still potential to turn that consumer confidence around and shore up the housing numbers later in the year.

Average Mortgage Rates

30-year FRM: 6.39%, 112 points*
15-year FRM: 5.95%, 1.16 points
1-year ARM: 7.09%, 1.59 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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