The Truth About Those "4.500 Percent Mortgage Rates" You Keep Hearing About
Business television is abuzz this morning with talk of “four-point-five percent mortgage rates”; the clip above ran on NBC Today. The news stems from a leaked story that the U.S. Treasury will intervene in the mortgage market, lowering rates a full percentage point below their current levels.
As cited by every journalist in every publication, however, the story is 100% speculation. Naturally, that doesn’t stop the press from covering it. When hope for homeowners gets spread in this manner, it’s important to remember some facts:
- The Treasury doesn’t set mortgage rates — Wall Street traders do. Historically, rates are based on the Supply and Demand for mortgage-backed bonds.
- Treasury intervention doesn’t guarantee low rates. That mortgage rates are up by a half-percent since last week proves it.
- Zero details about the plan have been confirmed, quoting CNBC. Everything you’ve heard about 4.5 percent rates is a guess at this point.
But, perhaps most importantly, nearly every analyst interviewed has expressed a belief that a Treasury-sponsored stimulus would apply to home buyers only. Homeowners wanting a refinance, in other words, would be ineligible.
Mortgage rates are very low today compared to where they’ve been in 2006, 2007 and 2008. If you think your mortgage rate is too high for this market, reach out to your loan officer to review all of your options. If rates really do reach 4.500 percent, you can always refinance again later.
How 78 Consecutive Days Of Falling Gas Prices Helps Sell Real Estate
For the 78th consecutive day, gas prices fell nationwide yesterday. At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.
And although gas prices vary by locale, the cost of a fill-up is worthy of national news.
The main reason why national gas prices matter is because of something called the Wealth Effect — people’s tendency to spend more money when they have a perceived feeling of being worth more.
Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide — the primary driver of the U.S. economy.
But more important than the Wealth Effect is the reverse Wealth Effect. That’s when consumers have a perceived feeling of being worth less and their spending reflects it. This past summer is a terrific example of it.
Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy. It follows, therefore, that retail sales figures plunged in September and October. Once the election passed, however, and gas prices fell, a gentle optimism returned.
Not surprisingly, consumer confidence rose in November.
All of this matters to real estate because as Americans regain their confidence and feel more “wealthy”, they will be more likely to make “move up” purchase, buy new home appliances, and take other actions that propel the economy forward.
Oh, and mortgage rates trolling at 3-year lows certainly helps, too.
(Image courtesy: GasBuddy.com)
You Locked In A Low Mortgage Rate — Now Youve Got To Close On It
Each Wednesday, the Mortgage Bankers Association releases its Weekly Applications Survey, a detailed look at new mortgage applications submitted over the previous 7 days.
This week’s report will reveal what most of us already know — plunging mortgage rates created a flood of mortgage activity.
If you’re among the many Americans taking advantage of today’s low rates, don’t forget that when your rate was “locked”, it was locked with an expiration date.
Most likely, that rate lock is for 30 days.
And, while 30 days may seem like a long time, it’s not. Especially because rate locks made prior to Thanksgiving lose a combined 14 days to weekends and holidays, plus another 4 days to the Right To Cancel clause.
A 30-day rate lock, therefore, yields just 12 “working” days in which to underwrite and approve the mortgage and that’s not a lot of time at all.
Making matters more difficult, many lenders are ill-equipped for boom.
Not only has staff been pared down in expectation of a slowing economy, but December a prime vacationing month, too. Lenders are short-staffed at a very inopportune time.
So, for active refinancing homeowners, the best way to preserve a 30-day rate lock is to be as responsive as possible to the process:
- If paystubs are requested, return them on the same day
- If a home appraisal is needed, schedule the appraisal immediately
- If a closing date is scheduled, don’t postpone it by a day
As mortgage rates hang near 3-year lows, the number of refinancing homeowners nationwide will grow, further taxing lenders and their staff. If you already have a loan in process, be pro-active about it to prevent your 30-day rate lock from expiring.
Mortgage Rates Fell But Be Careful Of History Repeating Itself
Like everything else on Wall Street, mortgage markets are based on supply and demand. When demand outweighs supply, mortgage rates fall.
So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned.
The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008. 30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.
Not coincidentally, January 22, 2008, was the date of another unexpected government intervention – a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward.
Interventions like these are a big reason why predicting mortgage rates is tough business — just when you discover the market’s balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.
Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility. Look at the trading pattern from Market Open to Market Close yesterday:
- 8:30 AM ET: Markets open with rates falling on the news
- 10:00 AM ET : Rates fall more on momentum trading
- 12:00 PM ET : Rates level at their lowest levels of the day
- 2:00 PM ET : Rates rise as profit-taking begins
- 3:30 PM ET : Rates rise more on momentum trading
- 4:00 PM ET : Markets close with rates down by half
Again, not coincidentally, this is the exact trading pattern from January 22, 2008. On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close — just like we saw Tuesday.
Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high. And, it’s not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.
Mortgage markets seek balance and when there’s a dramatic shift, chaos can creates opportunity. Tuesday’s $500 billion pledge added new demand and shocked the mortgage market system. Before long, it recovered to find balance.
As of today, mortgage rates are still hovering near their 3-year lows so if you haven’t spoken to your loan officer about a refinance, consider calling today.
Existing Home Sales Are Relatively Unchanged Going On 14 Months Now
In real estate, the term existing home refers to a “used” property; one that can’t be classified as new construction.
The number of existing homes sold each month is tracked by the National Association of REALTORS. The report is often used as a gauge for the health of the real estate market nationwide.
In October, nearly 5 million existing homes sold across the U.S. This figure represents a slight drop from September’s reading, and a equally slight drop from the October 2007 data.
But, October’s Existing Home Sales figures marked the 14th straight month in which Existing Home Sales straddled 5-million units. This is a remarkable statistic because 14 months of anything is a pattern, not a blip. Despite what the news tells us, Americans are buying and selling real estate at a somewhat steady clip.
As we head into the Holiday Season, buyer activity should slow, reducing demand for homes. At the same time, however, widespread foreclosure moratoriums should reduce the number of homes available to buy. These forces should counter-act to help keep the market (and prices) in balance.
(Image courtesy: USA Today)
Looking Back And Looking Ahead : November 24, 2008
As the stock market retraced to its 1997 level, mortgage markets improved last week — but not by much.
Mortgage rates closed out the week slightly lower, but the week wasn’t without fireworks.
- Calls of deflation grew louder
- The automakers left Washington without a bailout
- Citigroup’s stock price fell to the equivalent of its ATM fee
Separately, each of these elements would have created confusion on Wall Street. Together, they created near chaos. Stocks traded at a pace last week that has never been equaled.
As a result, mortgage rates were volatile, too.
Over the 5-day workweek, multiple mortgage lenders issued 11 distinct rate sheets, meaning that consumer mortgage rates changed every 3 hours, 38 minutes on average last week.
This is why home buyers should rate shop quickly. Wait too long and the mortgage rate is gone. And this week doesn’t figure to be any less volatile.
To start, it’s a holiday-shortened week. Fewer traders will be working as the week moves forward, making the Price Discovery process more difficult. With fewer active buyers and sellers, wild price swings are likely and mortgage rates should feel the impact.
Next, markets will debate the Citigroup Bailout, wondering whether this will (finally) mark the market bottom. It’s a conversation about which Wall Street never tires and with each bit of optimism, money should flow into stocks to the detriment of mortgage bonds and mortgage rates.
And lastly, there are 9 economic releases crammed into Monday, Tuesday, and Wednesday of this week, including two housing reports and an inflationary gauge behind which the Fed puts a lot of credence.
Signs of stabilization should buoy both stock markets and mortgage rates — Wall Street is craving balance of some sort to carry it into the New Year.
There are no Fed speakers scheduled for this week so watch for data and market sentiment to lead the markets. For rate shoppers, this means more rate sheets.
(Image courtesy: The Wall Street Journal)
Deflation And What It Means To Americans
Business television and newspapers have made deflation a hot topic this week and, since Monday, Google has tracked 13,000 mentions of it.
Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition.
For example, when DVD players were first introduced, they were tagged at $800.
Today, you can buy them for less than $20
Across many industries, however, and happening at the same time, falling prices can shut down the economy. Rather than buy things on the cheap, people stop buying anything at all. And why would they? The same items will cost less tomorrow.
And this is the problem with deflation — it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy. When it stops, the economic result is dwindling corporate revenues which leads to:
- Layoffs of the workforce, which leads to…
- Less consumer spending, which leads to…
- Dwindling corporate revenues, which leads to…
And the spiral continues.
Deflation can be much more insidious that its expansionary counterpart — inflation. Inflation is when the prices generally rise over time and it’s an economic condition through which governments can comfortably navigate. Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.
Whether the U.S. economy will slip into deflation is a matter of debate.
The Fed has cut the Fed Funds Rate to promote economic growth and those changes can take up to 12 months to work their way through the economy. Deflationary pressures we’re seeing today, in other words, may have already been addressed and corrected by Ben Bernanke’s 10 rate cuts in the last 14 months.
Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market — including the mortgage-backed variety. This should help lower mortgage rates and make homes more affordable.
(Image courtesy: The Wall Street Journal)
Looking Back And Looking Ahead : November 17, 2008
In another week of up-and-down trading, mortgage rates ended the week slightly higher last week.
Ping-pong action like this has defined mortgage markets lately. It’s increasingly common for rates to soar one day, and then come crashing down the next.
In response to market volatility, mortgage lenders issued as many as 8 distinct rate sheets in a holiday-shortened, 4-day trading week. Lately, shopping for a low mortgage rate has been as much about timing as anything else.
There wasn’t much economic news to digest last week save for Friday’s Retail Sales data.
The numbers reflected what most of us already know — consumers are not spending as freely as in the past. And, because consumer spending accounts for 70 percent of the U.S. economy, retail restraint can mean the difference between a growing economy and a slowing one.
October marked the 5th straight month of declines for Retail Sales.
This week, markets will have their hands full with new data, 7 Fed speakers, and ongoing rescue effort discussions from Washington.
From a data perspective, the two most important data points are the Producer Price Index and the Consumer Price Index. Both measure the “cost of living” as it applies to businesses and consumers, respectively, and both can signal inflation when the readings are too high.
Falling energy prices will likely cause PPI and CPI to post negative readings, but if those negative numbers post higher than expected, mortgage rates should rise in response.
Regardless, mortgage rate shoppers should standby in Ready Mode. Changes to the mortgage market — like changes to the stock market — have been furious and swift, measurable in minutes, not hours. The only way to beat a market like this is to not play in it.
Once you find a rate-and-payment combination that suits your household budget, consider locking it in with your loan officer. The risk of not committing can be too great in a market moving as quickly as this one.
(Image courtesy: The New York Times)
How The New Good Faith Estimate Form Can Help You Save Money On Your Mortgage
To help demystify the mortgage process, the federal government is giving the much-maligned Good Faith Estimate document a makeover. Effective January 1, 2010, the current, 2-page form will be replaced by a new, easier-to-understand version, spanning 3 pages.
The biggest strength of the new Good Faith Estimate is that it uses everyday English to explain how the mortgage works. For example, in one section titled “Loan Summary”, the Good Faith Estimate specifically answers:
- What is your interest rate?
- Can your interest rate rise?
- Does your loan have a prepayment penalty?
Using today’s disclosures, the answers are spread across 3 separate forms.
In addition, the new-look Good Faith Estimate identifies what charges are legally allowed change at the time of settlement, and how a mortgage applicant can opt for higher fees in exchange for a lower mortgage rate, and vice versa.
These educational elements are lacking from the current model.
But for all of its clarity, the Good Faith Estimate doesn’t address the issue of suitability. As in, is this the right loan for the right borrower? The new Good Faith Estimate won’t prevent homeowners from choosing “bad loans” — it will only educate them about the loan’s facts.
For suitable advice — as always — talk with a trusted mortgage professional who will both listen to your needs and help you make plans for them. Getting the “best terms” on an unsuitable loan can be far worse that getting great terms on a loan that fits.
4 States Account For 51 Percent Of The Nations October 2008 Foreclosures
Foreclosure is a hot topic among the press lately. It’s hard to turn on the television or open up a newspaper without seeing a story about it.
But what’s most interesting about foreclosures is that they appear to be concentrated in certain areas of the country.
According to the foreclosure-tracking service RealtyTrac, 4 states accounted for more than half of nation’s foreclosures last month.
And those 4 states — California, Florida, Arizona, and Nevada — share some very similar characteristics including:
- Their respective popularity with retirees and real estate investors
- Their large home value increases earlier this decade
In looking at the rest of the country’s foreclosure data, the remaining 46 states combined accounted for just 48.8 percent of October’s foreclosures.
That’s 1.06% per state on average.
Now, this isn’t meant to diminish the impact of foreclosures on the economy — quite the opposite. Foreclosures harm to the national housing market because most mortgage lenders are national. But, we highlight statistics like this to show that the foreclosure “problem” isn’t so bad in most parts of the country, relative.
Furthermore, mortgage lenders are intervening to slow the flow of defaults nationwide. Following the lead of JP Morgan and Bank of America, CitiMortgage just announced a sweeping plan to help homeowners avoid default and keep their homes.
In a way, for as good as this news is for homeowners, it’s equally bad news for home buyers. As the number of foreclosures decrease in any given market, it reduces the inventory of homes for sale. Lower supply levels often lead to higher sale prices and less room to negotiate. And this may be what the banks are trying to accomplish.
« Previous Entries