The Mortgage Bankers Association reported a large drop in mortgage applications last week, though the drop was driven heavily by a 48% drop in the interest rate sensitive refinance applications after mortgage rates broke their down trend the week before. Purchase applications fell 2.9%. Both the Mortgage Bankers Association and Freddie Mac reported 30-year Fixed Rate Mortgage (FRM) rates just above 5% and 15-year FRM rates below 5%. At the current rates an 8.5% 30-year mortgage could be refinanced into a 15-year mortgage at roughly the same payment – reason enough to refinance for anyone with 3 to 5 years on a subprime loan who can qualify now for prime rates.
Housing affordability is very strong, putting some legs under the market going forward, when employment stabilizes. According to Frank Nothaft, Freddie Mac chief economist:
Both the S&P/Case-Shiller® 20-city composite index, which registered an 18 percent annual decline through November, and the National Association of Realtors® (NAR) sales data, down 15 percent in December from a year ago, indicate sharply lower house prices across many U.S. metropolitan areas. At the same time, interest rates for 30-year fixed-rate mortgages reached a 50-year low toward the end of December. These two factors contributed to housing affordability reaching its highest level since 1973, as measured by the NAR’s monthly affordability index and help to explain the 7.0 percent increase in existing home sales in December.
Mortgage Bankers Association Average Mortgage Rates
30-year FRM: 5.22%, 1.05 points*
15-year FRM: 4.98%, 1.13 points
1-year ARM: 5.96%, 0.06 points
Freddie Mac Conforming Rates At a Glance
- 30-year FRM: 5.10%, 0.7 point
- 15-year FRM: 4.80%, 0.7 point
- 5-year hybrid ARM: 5.27%, 0.6 point
- 1-year ARM: 4.9%, 0.6 point
* 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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The Mortgage Bankers Association reported a drop in refinance applications last week after Fixed Rate Mortgage (FRM) rates rose more than three-tenths of a percent and Freddie Mac’s Primary Mortgage Market Survey also showed an increase in rates, though only about half as large. The reports on Adjustable Rate Mortgage (ARM) rates were mixed. Despite the increase in rates, the Mortgage Bankers Association reported a 2.5% increase in purchase mortgage applications.
There’s bad news on the credit availability front for homeowners looking to refinance out of bad situations. Eric from Dream Home Financing reported that:
Although refinance applications have increased, many borrowers no longer qualify or the rate adjustments due to their new credit situation have resulted in little benefit to refinance.
Ditech Home Loans puts more specific numbers to the situation for refinances:
Fall out for refinance applications are estimated at 50% to 65%, because of low appraisals and qualifying issues. The new Fannie Mae and Freddie Mac appraisal code may contribute to more fall out, as well as FHA’s 2 appraisal requirement for cash out refinancing over 85%.
Freddie Mac Conforming Rates At a Glance
- 30-year FRM: 5.12%, 0.7 point
- 15-year FRM: 4.8%, 0.7 point
- 5-year hybrid ARM: 5.24%, 0.6 point
- 1-year ARM: 4.92%, 0.7 point
Average Mortgage Rates
30-year FRM: 5.24%, 1.16 points*
15-year FRM: 4.99%, 1.20 points
1-year ARM: 5.89%, 0.07 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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S&P reported another big drop in its Case Shiller Home Price Index, which covers the top 20 metropolitan areas in the US and the Conference Board reported that US consumer confidence fell to a record low. 14 of the 20 cities indexed had annual declines of more than 10% from October 2007 to October 2008. All the cities except Detroit were above 2000 price levels, the top 10 were at 169.78% of 2000 levels, all 20 were at 158.16% of 2000 levels. The indexes peaked in July 2006; the Composite 10 is down 25% from that level and the Composite 20 is down 23.5%.
Several points worth noting:
- No city except Detroit is below the year 2000 price level, the year that began the housing boom.
- On average, homes have appreciated more than 50% in 8 years even after the declines.
- Charlotte, NC rose to a peak of 127.96% of the 2000 level and is now at 127.08% of the 2000 level.
- The cities with the biggest gains have fallen the farthest.
- New York, Portland, Dallas and Seattle have also maintained home prices fairly well with New York at 190% of 2000 levels.
- The variation is huge. All real estate is local. Location, location, location.
Read the full reports at EconoIndicators:
Case-Shiller Index
Consumer Confidence Index
Freddie Mac and the Mortgage Bankers Association are both reporting 30-year rates near 5% and 15-year Fixed Rate Mortgage (FRM) rates below 5% for a second week. Buyers have responded aggressively to the lower rates, with mortgage applications for home purchases up more than 10% last week.
With prices dropping in both the existing home and new home markets according to reports released earlier in the week and consumers real disposable income rising last month, housing affordability is considerably improved – a good sign for sales early next year. According to Frank Nothaft, Freddie Mac chief economist:
Interest rates on 30-year fixed-rate mortgages eased for the eighth straight week and set another record low since Freddie Mac’s survey began in 1971.
Freddie Mac Conforming Rates At a Glance
- 30-year FRM: 5.14%, 0.8 point
- 15-year FRM: 4.91%, 0.7 point
- 5-year hybrid ARM: 5.49%, 0.6 point
- 1-year ARM: 4.95%, 0.6 point
Average Mortgage Rates from Mortgage Bankers Association
30-year FRM: 5.04%, 1.17 points*
15-year FRM: 4.91%, 1.03 points
1-year ARM: 6.36%, 0.28 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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The Mortgage Bankers Association and Freddie Mac both reported good news for those needing to refinance mortgages and those with resetting ARMs with the MBAA reporting an average 15-year Fixed Rate Mortgage (FRM) rate below 5% and Freddie Mac reporting a 1-year ARM rate below 5% and 15-year FRM rates below 5%. Even 30-year FRM rates are flirting with 5% according to both reports. The Mortgage Bankers Association reported an increase in refinance activity and a small drop in purchase applications last week.
In other housing news, the National Association of Homebuilders reported that builder sentiment held steady at a record low in November and the Commerce Department reported another drop in housing starts. With new home inventories still in the 10 month range, the drop in housing starts to a level a little over half the November 2007 level is good news for homeowners, but bad news for construction workers, building suppliers and for home buyers who wait too long to buy. NAHB Chairman Sandy Dunn blames sales conditions for the negative sentiment:
While builders are doing everything we can in the way of price and non-price incentives to move new homes off the books, buyers are afraid to move forward, and in any case there is almost no way to compete with the cut-rate product that is continually flooding the market from mounting foreclosures.
Buyers need to, carefully of course, take advantage of the real bargains that are starting to pile up whether it’s from foreclosures or builder incentives, as with building slowing this much and mortgage freezes in place inventories are going to drop and when they do the bargains will dry up.
Mortgage Bankers Association Average Mortgage Rates
30-year FRM: 5.18%, 1.13 points*
15-year FRM: 4.93%, 1.34 points
1-year ARM: 6.63%, 0.3 points
Freddie Mac Conforming Mortgage Average Rates
- 30-year FRM: 5.19%, 0.7 point
- 15-year FRM: 4.92%, 0.7 point
- 5-year hybrid ARM: 5.6%, 0.6 point
- 1-year ARM: 4.94%, 0.5 point
* 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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