Hello, and thanks for visiting my Blog. I've moved all my new posts over to my new website, www.StartwiththeHouse.com. Please click through to there to stay up to date with the latest mortgage strategies and news. When you "StartwiththeHouse" you can succeed financially.
Regards,
Tom Tousignant CMPS
Thursday, September 24, 2009
Wednesday, July 29, 2009
How long will it take to recoup your closing costs
I read an article in the paper this week from a home finance ‘expert’. She closed with the comment, “be sure your refinancing costs can be covered in about six months”. Great, meaningless, advice.
Where does the ’six months’ rule of thumb come from? (Hint: thin air.) If you are going to move in six months, that is great advice. If, however, you plan on staying in your home for more than a year or so, what difference does the time to recoup closing costs make? If you spend less money on interest over time, does it really matter if it takes you six months, or six years to recoup your refinancing costs?
The real number you need to know
What will be your total cost of financing over the period of time you expect to have your mortgage? A good loan agent should be able to calculate this for you. It’s a pretty simple calculation, but, unfortunately the vast majority of loan agents are never taught how to do this. Their training is ’sales based’ training. That is, they are trained to prospect, present, close, answer objections, and close again. That is why so many loan agents came from other industries, and so many more are now leaving the mortgage business to go back to other sales jobs.
The Total Cost of financing your house is the sum of the closing costs plus the interest you will pay on the mortgage. By knowing the Total Cost, you can make an informed loan decision. As an example, consider the case of Fred and Nicole. They are going to live in their house for at least ten more years. If they can refinance their current two year old mortgage from a current rate of 6.875% to 5.875%, they will save $274 per month. However, with the lender fees, appraisal, and legal fees, they need to spend almost $6,000 to do so. Our newspaper reporter mentioned above would simply divide the $6,000 by 274 and say, “That’s 22 months to recoup your costs, so that’s too long a time period. Don’t refinance and continue paying the bank an extra $274 each month”.
However, using some good mortgage software, or by looking at the amortization schedule, we showed Fred & Nicole that over the next 10 years, a refinance would have them spending $32,850 less on interest. Add back the $6,000 in closing costs, and refinancing now would save Fred and Nicole $26,850 in 10 years.
What to do with the savings
Using the priorities I spell out at StartwiththeHouse.com, the real benefit may not be the $274 per month or $26,850 in 10 years. More important that the Total Cost, may be “What will you do with the savings?” For Fred and Nicole, they had an adequate emergency fund (Step One), carried no credit card or “bad” debt (Step Two), had adequate protection for their house (Step Three), so they were in a position to choose what the best way to deploy the monthly savings was. (Step Four). Fred and Nicole decided, with advice from their Financial Planner, that the best use of that money for them was to continue making the same mortgage payment as before, but now more of their payment would go towards principal and less towards interest. In 10 years, they would have $41,500 more equity in their house by refinancing with a plan.
What this means for you:
Where does the ’six months’ rule of thumb come from? (Hint: thin air.) If you are going to move in six months, that is great advice. If, however, you plan on staying in your home for more than a year or so, what difference does the time to recoup closing costs make? If you spend less money on interest over time, does it really matter if it takes you six months, or six years to recoup your refinancing costs?
The real number you need to know
What will be your total cost of financing over the period of time you expect to have your mortgage? A good loan agent should be able to calculate this for you. It’s a pretty simple calculation, but, unfortunately the vast majority of loan agents are never taught how to do this. Their training is ’sales based’ training. That is, they are trained to prospect, present, close, answer objections, and close again. That is why so many loan agents came from other industries, and so many more are now leaving the mortgage business to go back to other sales jobs.
The Total Cost of financing your house is the sum of the closing costs plus the interest you will pay on the mortgage. By knowing the Total Cost, you can make an informed loan decision. As an example, consider the case of Fred and Nicole. They are going to live in their house for at least ten more years. If they can refinance their current two year old mortgage from a current rate of 6.875% to 5.875%, they will save $274 per month. However, with the lender fees, appraisal, and legal fees, they need to spend almost $6,000 to do so. Our newspaper reporter mentioned above would simply divide the $6,000 by 274 and say, “That’s 22 months to recoup your costs, so that’s too long a time period. Don’t refinance and continue paying the bank an extra $274 each month”.
However, using some good mortgage software, or by looking at the amortization schedule, we showed Fred & Nicole that over the next 10 years, a refinance would have them spending $32,850 less on interest. Add back the $6,000 in closing costs, and refinancing now would save Fred and Nicole $26,850 in 10 years.
What to do with the savings
Using the priorities I spell out at StartwiththeHouse.com, the real benefit may not be the $274 per month or $26,850 in 10 years. More important that the Total Cost, may be “What will you do with the savings?” For Fred and Nicole, they had an adequate emergency fund (Step One), carried no credit card or “bad” debt (Step Two), had adequate protection for their house (Step Three), so they were in a position to choose what the best way to deploy the monthly savings was. (Step Four). Fred and Nicole decided, with advice from their Financial Planner, that the best use of that money for them was to continue making the same mortgage payment as before, but now more of their payment would go towards principal and less towards interest. In 10 years, they would have $41,500 more equity in their house by refinancing with a plan.
What this means for you:
- Forget outdated rules of thumb, like the one that prompted this article. If Fred & Nicole needed to recoup their closing costs in an artificially low time frame, they never would have refinanced, and would have a much larger mortgage balance at the end of their 10 year time frame.
- Make sure your loan agent can show you the real numbers. Remember, his training may only be in how to close the sale, so if he/she can’t answer your questions, find a mortgage professional who can. www.CMPSInstitute.org is a great place to find a local mortgage planner.
- Know the Total Cost of home ownership. Your refinance decision is not about interest rates or closing costs. It’s about the amount of money you will spend to finance your house. Closing costs are irrelevant if you save more money over time with a lower rate. Conversely, the lowest rate with very high closing costs will be very expensive if you need to sell your house in 1-2 years.
- (Commercial) If you can’t find someone who can show you the true “Total Cost’ of home ownership, give me a call - that’s what I do.
Friday, June 26, 2009
For most of my clients, their mortgage payment is usually the largest check they write each month. I’ve found that when I assist someone with their mortgage, that if they look at their mortgage in the context of their overall financial picture, they make better mortgage decisions, and better financial decisions.
If the Mortgage is the largest monthly expense, and after time, home equity becomes many families’ largest asset, then isn’t it reasonable to assume that if your financial planning starts with your house, that you have a better chance of reaching your financial goals and succeeding financially?
The idea is to start with the house, and answer questions like these, when you are thinking of buying a house, or if you already own a house, make sure you have answers to these types of questions.
If you are thinking of buying, or thinking about your financial future, I encourage you to “Start With The House” and make sure that your mortgage and your house are helping you succeed financially. Spend some time at my new website, www.startwiththehouse.com and see if you recognize any gaps in your plan. Let me know if I can help.
If the Mortgage is the largest monthly expense, and after time, home equity becomes many families’ largest asset, then isn’t it reasonable to assume that if your financial planning starts with your house, that you have a better chance of reaching your financial goals and succeeding financially?
The idea is to start with the house, and answer questions like these, when you are thinking of buying a house, or if you already own a house, make sure you have answers to these types of questions.
- How expensive a house should we buy?
- How big a mortgage payment should we accept, even if we can qualify for more?
- How should the loan be repaid?
- How should the actual closing costs of a new mortgage be paid
- How important are the income tax consequences of our mortgage decision and how should we maximize our tax savings?
- How can we protect our equity?
- How can our mortgage help us create wealth?
If you are thinking of buying, or thinking about your financial future, I encourage you to “Start With The House” and make sure that your mortgage and your house are helping you succeed financially. Spend some time at my new website, www.startwiththehouse.com and see if you recognize any gaps in your plan. Let me know if I can help.
Sunday, May 10, 2009
How Important is Cash in the Bank?
One of the first things I ask people to consider when building their mortgage plan is how much liquid cash they have on hand and how much do they need. In fact, of all the considerations, liquid cash is probably most important. A lot of people learned the hard way that equity in the house in not the same as money in the bank - only money in the bank is like money in the bank.
As you start to build your mortgage plan, you need to ask, "What could happen, good or bad, and does the mortgage / house equity help or hurt me?"
When you look at the threats to your wealth and financial safety, almost everything turns out better if you have $10,000 more cash in a liquid account. Conversely, almost everything turns out worse if you have $10,000 more equity in your house rather than in a bank account. Let's play a few rounds of the game: "Would you Rather":
As you start to build your mortgage plan, you need to ask, "What could happen, good or bad, and does the mortgage / house equity help or hurt me?"
When you look at the threats to your wealth and financial safety, almost everything turns out better if you have $10,000 more cash in a liquid account. Conversely, almost everything turns out worse if you have $10,000 more equity in your house rather than in a bank account. Let's play a few rounds of the game: "Would you Rather":
- If you lose your job, would you rather have an extra $10,000 in your savings account or a mortgage that is $10,000 lower($10,000 more equity in your house) in order to reduce your mortgage payment by $60 per month?
- An ice storm hits, knocks out power for a week, and drops a tree limb onto your car. Would you rather have $10,000 cash in the bank, or $10,000 more equity in your house.
- A friend's co-worker needs cash in a hurry and is willing to sell you his car $5,000 below blue book trace in. Would you rather have $10,000 available to you, or $10,000 home equity that can't be accessed to buy the car?
As you can see, good or bad, having extra cash in the bank is the cheapest and most versatile insurance you can buy - in fact, it's pretty much free. Having some liquid cash available is the first step to creating a mortgage plan that works for you.
I will often recommend people choose to put less money down on their house, or to take money out when they refinance, in order to make sure they have a start on their emergency fund. Most experts will tell you that you need 3-6 months' living expenses in a liquid emergency fund. What I've found is that a lot of people can't see themselves saving that much money all at once, so they never get started. They then develop a habit of not having enough liquid savings and have to turn to credit cards to bail them out of mostly minor problems. Then the credit card interest payments make saving even tougher.
When you put a lot of money in motion, like when you buy a house or refinance your house, it's a great opportunity to start a new habit as a saver and keep some of that money aside to start building that emergency fund if you haven't already. This is one habit you can live with!
If you don't have the ability to create a quick chunk of your emergency fund when you buy or refinance your house, make that the first priority - play another few rounds of 'Would you Rather' and discover for yourself how important is is to get some of your money in your bank account. Choose to build up your savings before you choose to pay extra on your mortgage, buy a new toy, or even pay off credit card bills - just ask yourself which would you rather have as you go through the next year.
Thursday, May 7, 2009
Will you ever see your downpayment again?
I was thinking of titling this post, "Why I no longer hate PMI, and maybe you shouldn't either". I was doing some math the other day for a presentation I made at a local Chamber of Commerce luncheon and it struck me - mush of a downpayment on a house will never be seen again by the owner! As an example, assume a buyer puts 20% down on a house purchase to avoid PMI (Private Mortgage Insurance). Some time later, they have a need to access the wealth they chose to store in the house. There are only three ways to get to your equity:
- Open a Home Equity Line of Credit (HELOC)
- Refinance the mortgage to get cash out
- Sell the house.
With each option, a substantial amount of equity must be left behind. For the HELOC option, most of the money will be inaccessible, as the best HELOC's today only allow the owner to get up to 90% of the current value of the house. Several banks limit HELOC's to just 80% of the house value, so that leaves most or all of the equity trapped.
With a cash out refinance, rules changes with Fannie Mae, Freddie Mac and FHA guidelines limit the cash out amount to 85% of the appraised value of the house, leaving 15% of the wealth trapped inside the house.
To sell the house, you, as the seller, could expect to pay 5-6% in real estate commissions and anywhere from 1-3% in state taxes, and likely will not be able to sell the house for the full asking price. in the case of a sale, 6% to 10% could easily be lost in transaction costs, and the time to get access to the wealth could be as long as 6 months or more.
So, if you are thinking of putting 20% down on a home purchase to avoid PMI, maybe you need to run some numbers and scenarios and ask yourself, what if I need my money back? Might you be better off with a smaller downpayment, say 5-10%, even if you had to pay PMI? If you ever really needed the money and then find out the answer is, "you can't have your money back", due to declining property values, loan guideline changes, or a change in your ability to borrow, then suddenly PMI looks really cheap.
What if you only put 5% down, and then your home declines in value by 10% and you are now "upside down"? My first response is, "Who says your house declined in value?" If you aren't selling your house, it doesn't matter what someone says you house is worth, does it? You still have the same square footage, number of bedrooms, location, etc, so if you aren't moving, the alleged value of your house is really meaningless to you.
Your home's value does matter if you need to get some equity from it, and, forces beyond your control, namely property values and loan guideline changes, could make your equity inaccessible to you.
The lesson here - you might be better off with a larger monthly mortgage payment that includes PMI in order to have your money where you can access it rather that blindly following the advice of 'do anything to avoid PMI' and then finding out your wealth is gone.
Monday, May 4, 2009
What to do with an Inheritance, Part two
In may last post, I discussed a case of a family that inherited some money and wanted to pay off their mortgage. The second homeowner I spoke to recently had also inherited money, this time as a result of her spouse's early passing and receiving life insurance proceeds. Her financial advisor is advising her to let him manage the money as he can earn more with it than if it is just sitting in the house. With four children, she is receiving enough social security survivor benefits to pay a mortgage and raise her children. The good news in this story, financially, is that the mortgage balance is much less than the insurance proceeds, so paying off the mortgage won't drain all her savings. Also, her husband had bought the life insurance so that she could pay off the house if anything ever happened to him.
In this case, paying off the mortgage with the inheritance seems like a smart idea: It was her husband's wish, she has more assets left over, other financial needs are covered. (for her, the primary concerns were daily living expenses and education for the four children). Since she will still have her assets diversified between the equity in the house and other savings, she has the structured, regular social security payments for monthly needs, paying off the mortgage doesn't put her financial priorities out of whack.
Most important of all, she and her husband are to be commended for thinking through the unthinkable, coming up with a plan and then funding it properly so that the family can be OK financially during this tough time.
Does your mortgage plan covers the "what if's" in life that could cause real hardship to important people in your life?
In this case, paying off the mortgage with the inheritance seems like a smart idea: It was her husband's wish, she has more assets left over, other financial needs are covered. (for her, the primary concerns were daily living expenses and education for the four children). Since she will still have her assets diversified between the equity in the house and other savings, she has the structured, regular social security payments for monthly needs, paying off the mortgage doesn't put her financial priorities out of whack.
Most important of all, she and her husband are to be commended for thinking through the unthinkable, coming up with a plan and then funding it properly so that the family can be OK financially during this tough time.
Does your mortgage plan covers the "what if's" in life that could cause real hardship to important people in your life?
Saturday, May 2, 2009
Inheritance: Pay off your mortgage?
I've been asked twice in the past few weeks if a person should pay off their mortgage since they just inherited some money. As is most often the case, the answer is, "It depends".
In the first case, this family hated the thought of paying a mortgage for 30 years. The inheritance was just a little larger than the mortgage balance they had, so they could easily use that money to eliminate mortgage payments forever. When we reviewed the financial priorities for this family, we looked at the mortgage, financial protection (insurance), education for their children, and retirement. In each case, the family agreed that the other priorities they had were more important, on paper, than the peace of not having a mortgage. It boils down, as it often does, to the emotional pleasure of not having a mortgage, versus the logic of taking care of more important priorities first, and then paying off the mortgage. For this family, they decided to use some of the money to pay the mortgage balance down while refinancing to a shorter term mortgage. They are putting the rest of the money into retirement and college savings, so they are making progress on three financial goals with this inheritance, rather than putting it all into the house.
Have you been faced with this decision, or if you had this opportunity, what would you do?
In the first case, this family hated the thought of paying a mortgage for 30 years. The inheritance was just a little larger than the mortgage balance they had, so they could easily use that money to eliminate mortgage payments forever. When we reviewed the financial priorities for this family, we looked at the mortgage, financial protection (insurance), education for their children, and retirement. In each case, the family agreed that the other priorities they had were more important, on paper, than the peace of not having a mortgage. It boils down, as it often does, to the emotional pleasure of not having a mortgage, versus the logic of taking care of more important priorities first, and then paying off the mortgage. For this family, they decided to use some of the money to pay the mortgage balance down while refinancing to a shorter term mortgage. They are putting the rest of the money into retirement and college savings, so they are making progress on three financial goals with this inheritance, rather than putting it all into the house.
Have you been faced with this decision, or if you had this opportunity, what would you do?
Friday, April 17, 2009
Fewer Housing Starts - Good News or Bad?
With respect to housing data, news is rarely positive or negative on a universal level. There's always two perspectives to consider, after all.
The home buyer's perspective
The home seller's perspective
Usually, when data is beneficial to one group, it's less beneficial to the other. This is true for rising home prices, average days on market and so forth.
Today, the group that gets the most benefit from data is the home seller group.
Published Thursday, a government report showed that Housing Starts fell 11 percent nationwide in March and also fell short of analyst expectations. A "Housing Start" is a new housing unit on which construction has started.
The press is calling this a stumbling block for the economy, but that's not exactly true.
Fewer Housing Starts last month means that fewer new homes will come on the market later this year. This is not necessarily bad news. Especially if you're planning to sell your home in the latter half of the year. With fewer homes for sale, the supply-and-demand curve should shift in favor of home sellers. This helps stabilize home prices at a time when they might otherwise be prone to fall.
If it's true that stable housing markets are key in an economic recovery, then fewer Housing Starts is actually a push in the right direction.
But there's more to the story (as always).
As footnoted in the Commerce Department's report, a statistical disclaimer states that the Housing Starts data's Margin of Error was so high that the report's conclusion is just a guess. Technically, the entire report is invalid anyway
So, the government won't issue its final March 2009 Housing Starts data for months, but if the initial figures stick, home sellers may be in position to command higher sale prices later this year to the detriment of home buyers. It's basic economics.
And from a home seller's perspective, that news is good.
The home buyer's perspective
The home seller's perspective
Usually, when data is beneficial to one group, it's less beneficial to the other. This is true for rising home prices, average days on market and so forth.
Today, the group that gets the most benefit from data is the home seller group.
Published Thursday, a government report showed that Housing Starts fell 11 percent nationwide in March and also fell short of analyst expectations. A "Housing Start" is a new housing unit on which construction has started.
The press is calling this a stumbling block for the economy, but that's not exactly true.
Fewer Housing Starts last month means that fewer new homes will come on the market later this year. This is not necessarily bad news. Especially if you're planning to sell your home in the latter half of the year. With fewer homes for sale, the supply-and-demand curve should shift in favor of home sellers. This helps stabilize home prices at a time when they might otherwise be prone to fall.
If it's true that stable housing markets are key in an economic recovery, then fewer Housing Starts is actually a push in the right direction.
But there's more to the story (as always).
As footnoted in the Commerce Department's report, a statistical disclaimer states that the Housing Starts data's Margin of Error was so high that the report's conclusion is just a guess. Technically, the entire report is invalid anyway
So, the government won't issue its final March 2009 Housing Starts data for months, but if the initial figures stick, home sellers may be in position to command higher sale prices later this year to the detriment of home buyers. It's basic economics.
And from a home seller's perspective, that news is good.
Tuesday, April 14, 2009
Why does the President want you to Refinance now?
Last Thursday, President Obama sat down with some homeowners who had recently refinanced their mortgages to declare some 'good news'. "We are at a time where people can really take advantage of this", he said. As far as I can tell, the President gets to live rent-free in the White House, so why is he urging refinances now?
Some quick back of the envelope calculations may give a hint. There are over $10 Trillion in outstanding mortgage debts in the US. $6 Trillion of that is under the guidelines issues by Fannie Mae / Freddie Mac with an average interest rate of 6.5%. If all those loans could be refinanced at 5.0%, it would save homeowners $900 million a month in interest charges. (The savings on a $200,000 mortgage dropping from 6.5% to 5.0% would be $190 per month). Let's hope that half of all the mortgages outstanding could qualify to refinance, and that half of those who can qualify, do. That results in $2.5 Trillion new mortgages this year with interest savings of $375 Million per month. This $375 million can then be used for further reducing debt, investing, or spending. I think the government prefers the last option, as consumer spending would cause the economy to grow.
The other factor I didn't mention is that many people who refinance will be able to and choose to extract additional equity from their home to pay of 2nd mortgages, credit cards, or to fund home improvements. This extra cash flow entering the economy will further expand the impact of refinancing now.
So, if you are wondering why does the president care if you refinance, think of the benefit to you personally, and to the country as a whole, if even just half of those who could benefit from a refinance get that done this spring.
Some quick back of the envelope calculations may give a hint. There are over $10 Trillion in outstanding mortgage debts in the US. $6 Trillion of that is under the guidelines issues by Fannie Mae / Freddie Mac with an average interest rate of 6.5%. If all those loans could be refinanced at 5.0%, it would save homeowners $900 million a month in interest charges. (The savings on a $200,000 mortgage dropping from 6.5% to 5.0% would be $190 per month). Let's hope that half of all the mortgages outstanding could qualify to refinance, and that half of those who can qualify, do. That results in $2.5 Trillion new mortgages this year with interest savings of $375 Million per month. This $375 million can then be used for further reducing debt, investing, or spending. I think the government prefers the last option, as consumer spending would cause the economy to grow.
The other factor I didn't mention is that many people who refinance will be able to and choose to extract additional equity from their home to pay of 2nd mortgages, credit cards, or to fund home improvements. This extra cash flow entering the economy will further expand the impact of refinancing now.
So, if you are wondering why does the president care if you refinance, think of the benefit to you personally, and to the country as a whole, if even just half of those who could benefit from a refinance get that done this spring.
Thursday, April 2, 2009
The 2% Rate drop Myth
It is 1970’s era thinking that interest rates must drop by 2% + to justify the cost of refinancing.
First problem with that: If you are currently at 6% waiting for a 2% drop in rates, you are unlikely to see 4%.
Second problem: In 1978 the price of home was about $38,000 which meant $2000 in closing costs took a while to recoup.
With the average home now closer to $200,000 the dollar savings on smaller interest drops is bigger. Yes, 2% is nice, but not a universal number.
What if you can save $150-200 each month for 30 years? That certainly adds up.
Skip the temptation to make decisions based on rules of thumb. Watch this video. Run the numbers. Make an informed decision based on your circumstances, not rules of thumb you hear on TV.
First problem with that: If you are currently at 6% waiting for a 2% drop in rates, you are unlikely to see 4%.
Second problem: In 1978 the price of home was about $38,000 which meant $2000 in closing costs took a while to recoup.
With the average home now closer to $200,000 the dollar savings on smaller interest drops is bigger. Yes, 2% is nice, but not a universal number.
What if you can save $150-200 each month for 30 years? That certainly adds up.
Skip the temptation to make decisions based on rules of thumb. Watch this video. Run the numbers. Make an informed decision based on your circumstances, not rules of thumb you hear on TV.
More good housing news - homes under contract up 2%
The number of homes under contract to sell is rising, another signal that the housing market may be regaining its footing.
As reported by the National Association of Realtors, an industry trade group, the Pending Home Sales Index gained 2.1 percent in February. The report measures MLS-listed homes in "pending" status -- sold but not yet closed.
Pending Home Sales is not a perfect statistic, though, by any means.
For one, the Pending Home Sales Index doesn't account for non-MLS listed homes including For Sale By Owner properties and mass foreclosure auctions. In certain markets nationwide, these two categories represent a large percentage of the overall transaction volume.
Secondly, Pending Home Sales samples just 20 percent of all MLS-based transactions -- hardly a complete listing.
But most importantly, a "pending" home sale is not the same as a closed home sale. A lot of things can go wrong between the time a home goes under contract and the supposed closing date. For example, the home inspection could fail, the contract could fall apart, and/or the buyer's financing could be denied in underwriting.
All things equal, though, Pending Home Sales is a fair forward-looking indicator for the housing market as a measurement of buy-side demand for homes.
When Pending Home Sales rise, it's tells us that buyers and sellers are matching up, clearing out market inventory. And actual home sales often follow "pending" ones -- 80 percent of Pending Home Sales will close within 60 days.
As reported by the National Association of Realtors, an industry trade group, the Pending Home Sales Index gained 2.1 percent in February. The report measures MLS-listed homes in "pending" status -- sold but not yet closed.
Pending Home Sales is not a perfect statistic, though, by any means.
For one, the Pending Home Sales Index doesn't account for non-MLS listed homes including For Sale By Owner properties and mass foreclosure auctions. In certain markets nationwide, these two categories represent a large percentage of the overall transaction volume.
Secondly, Pending Home Sales samples just 20 percent of all MLS-based transactions -- hardly a complete listing.
But most importantly, a "pending" home sale is not the same as a closed home sale. A lot of things can go wrong between the time a home goes under contract and the supposed closing date. For example, the home inspection could fail, the contract could fall apart, and/or the buyer's financing could be denied in underwriting.
All things equal, though, Pending Home Sales is a fair forward-looking indicator for the housing market as a measurement of buy-side demand for homes.
When Pending Home Sales rise, it's tells us that buyers and sellers are matching up, clearing out market inventory. And actual home sales often follow "pending" ones -- 80 percent of Pending Home Sales will close within 60 days.
So, this isn't a guarantee, but another positive indicator for the housing market.
Wednesday, April 1, 2009
Are home prices really falling?
Depends On Who You Ask.
A report published Tuesday showed that home values fell nearly 3 percent in January 2009 versus the month prior and by 19 percent from last year.
On the surface, data from the study looks like more bad news for housing. With deeper inspection, though, we uncover reasons to discount the report's finding.
For one, the report includes home price data from just 20 cities around the country -- and they're not the 20 most populated cities, either.
For example, data from #4-ranked Houston is not included and neither is #7 San Antonio nor #10 San Jose. #54 Tampa, however, is included.
Secondly, the report is two months lagging.
Published March 31, its data is only accurate as of January and a lot has happened in the last 2 months. This includes a record-drop in interest rates and the introduction of an $8,000 tax credit for qualified first-time home buyers. The stimulus has helped raise home sales volume on both new homes and previously-owned ones.
And lastly, one more reason to question the relevance of the Case-Shiller report is that a government study on the same topic showed home values rising over the same period, not falling. According to the Federal Housing Finance Agency, home values grew 1.7 percent from December 2008 to January 2009.
In the end, home values are a local phenomenon that can't be summarized as a national "summary". National data can be helpful for watching longer-term trends, but it shouldn't be used to make a "Buy or Not Buy" decision.
For many, the reports of home values should just be one criteria. You also need to look at quality of life issues, that is, are you living where you want to live, are your kids in the school you want them in, etc.
Source List of United States cities by population http://en.wikipedia.org/wiki/List_of_United_States_cities_by_population
A report published Tuesday showed that home values fell nearly 3 percent in January 2009 versus the month prior and by 19 percent from last year.
On the surface, data from the study looks like more bad news for housing. With deeper inspection, though, we uncover reasons to discount the report's finding.
For one, the report includes home price data from just 20 cities around the country -- and they're not the 20 most populated cities, either.
For example, data from #4-ranked Houston is not included and neither is #7 San Antonio nor #10 San Jose. #54 Tampa, however, is included.
Secondly, the report is two months lagging.
Published March 31, its data is only accurate as of January and a lot has happened in the last 2 months. This includes a record-drop in interest rates and the introduction of an $8,000 tax credit for qualified first-time home buyers. The stimulus has helped raise home sales volume on both new homes and previously-owned ones.
And lastly, one more reason to question the relevance of the Case-Shiller report is that a government study on the same topic showed home values rising over the same period, not falling. According to the Federal Housing Finance Agency, home values grew 1.7 percent from December 2008 to January 2009.
In the end, home values are a local phenomenon that can't be summarized as a national "summary". National data can be helpful for watching longer-term trends, but it shouldn't be used to make a "Buy or Not Buy" decision.
For many, the reports of home values should just be one criteria. You also need to look at quality of life issues, that is, are you living where you want to live, are your kids in the school you want them in, etc.
Source List of United States cities by population http://en.wikipedia.org/wiki/List_of_United_States_cities_by_population
Tuesday, March 31, 2009
8 things you shouldn't do if you are refinancing
With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities.
The downside of today's unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business. As a result, the process of underwriting and approving new mortgage applications is taking some lenders as long as 2 months to complete.
With all the lending guideline changes of the past fwe years, it's important for applicants to remember that mortgage approvals can be revoked at any time prior to funding.
As mortgage applicants, there are many events that are out of our control -- job security and health matters, for example. But there are also events that are within our control.
Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process. It may be the difference between being approved and being turned down.
Now, avoiding these items may not be practical for everyone. For example, if your car lease is expiring and you need a larger vehicle, it doesn't mean you can't buy the car -- just check with your loan officer first to be sure the new payments won't "break" your approval.
The same goes for accepting cash gifts from parents. There's a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.
Mortgage lending is full of "gotchas" and with underwriting times stretching to 60 days, it's a lot more likely that a mortgage applicant will trip into one. Following these 8 rules, though, is a good start.
The downside of today's unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business. As a result, the process of underwriting and approving new mortgage applications is taking some lenders as long as 2 months to complete.
With all the lending guideline changes of the past fwe years, it's important for applicants to remember that mortgage approvals can be revoked at any time prior to funding.
As mortgage applicants, there are many events that are out of our control -- job security and health matters, for example. But there are also events that are within our control.
Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process. It may be the difference between being approved and being turned down.
- Don't buy a new car or trade-up to a bigger lease.
- Don't quit your job to change industries
- Don't switch from a salaried job to a heavily-commissioned job
- Don't transfer large sums of money between bank accounts
- Don't forget to pay your bills -- even the ones in dispute
- Don't open new credit cards -- even if you're getting 20% off
- Don't accept a cash gift without filing the proper "gift" paperwork
- Don't make random, undocumented deposits into your bank account
Now, avoiding these items may not be practical for everyone. For example, if your car lease is expiring and you need a larger vehicle, it doesn't mean you can't buy the car -- just check with your loan officer first to be sure the new payments won't "break" your approval.
The same goes for accepting cash gifts from parents. There's a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.
Mortgage lending is full of "gotchas" and with underwriting times stretching to 60 days, it's a lot more likely that a mortgage applicant will trip into one. Following these 8 rules, though, is a good start.
Mortgage Rate Forecast for the week of 3/30/09
The stock markets made strong gains last week but the mortgage markets barely moved in the wake of the Treasury's "toxic asset" plan.
After carving out wide trading ranges on most days, mortgage pricing ended the week about where they ended
From an economic standpoint, though, last week was an interesting one.
-Existing home sales showed unexpected strength
-New home sales showed unexpected strength
-Data showed home prices rising unexpectedly
In addition, consumer confidence rose unexpectedly, too.
To rate shoppers, these "unexpected" developments are warnings worth heeding because mortgages trade on expectations of the future. And "the future", you'll remember was widely expected to be an economic abyss.
This is one of the many reasons why mortgage rates are so low right now -- during uncertain times, investors flock to safe investments. But when those expectations change, mortgage rates usually do, too.
And quickly.
Our current recession has been thus far called "housing-led" and was predicted to last several years. Last week's data, however, provides at least some evidence that the recession may be ending; that the economy may find its way forward sooner rather than later.
Indeed, even members of the Federal Reserve now call for a turnaround starting in as few as 6 months.
For now, market reaction to the unexpected data has been tepid. Therefore, watch for developments over the coming weeks and -- perhaps more importantly -- keep an eye on the investor mindset. If bond markets start to sell-off en masse, mortgage rates could jump higher by quarter-point leaps at a time.
Meanwhile, this week, the biggest data release is Friday's jobs report. It's expected to show unemployment reaching to 8.5% with another 656,000 Americans losing their jobs in March. As before, if the data isn't as bad as expected, watch for stocks to rise and mortgage rates to go with them.
Even with a trickle of good news starting in the housing sector, the Fed and the Treasury still have a strong interest in keeping interest rates low - I think the target is the 4.5 to 5.0% range on the 30 year fixed.
After carving out wide trading ranges on most days, mortgage pricing ended the week about where they ended
From an economic standpoint, though, last week was an interesting one.
-Existing home sales showed unexpected strength
-New home sales showed unexpected strength
-Data showed home prices rising unexpectedly
In addition, consumer confidence rose unexpectedly, too.
To rate shoppers, these "unexpected" developments are warnings worth heeding because mortgages trade on expectations of the future. And "the future", you'll remember was widely expected to be an economic abyss.
This is one of the many reasons why mortgage rates are so low right now -- during uncertain times, investors flock to safe investments. But when those expectations change, mortgage rates usually do, too.
And quickly.
Our current recession has been thus far called "housing-led" and was predicted to last several years. Last week's data, however, provides at least some evidence that the recession may be ending; that the economy may find its way forward sooner rather than later.
Indeed, even members of the Federal Reserve now call for a turnaround starting in as few as 6 months.
For now, market reaction to the unexpected data has been tepid. Therefore, watch for developments over the coming weeks and -- perhaps more importantly -- keep an eye on the investor mindset. If bond markets start to sell-off en masse, mortgage rates could jump higher by quarter-point leaps at a time.
Meanwhile, this week, the biggest data release is Friday's jobs report. It's expected to show unemployment reaching to 8.5% with another 656,000 Americans losing their jobs in March. As before, if the data isn't as bad as expected, watch for stocks to rise and mortgage rates to go with them.
Even with a trickle of good news starting in the housing sector, the Fed and the Treasury still have a strong interest in keeping interest rates low - I think the target is the 4.5 to 5.0% range on the 30 year fixed.
Friday, March 27, 2009
Last Call for FHA cash out refinances
If you're in want of a cash out refinance, the most liberal cash-out program in town is about to make qualification more difficult.
Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home's value to 85%.
In its official press release, the FHA days it's making the change to "limit its exposure to undue risk".
It also lists the following cash-out requirements:
With less than 12 months since the purchase date, a home's value cannot exceed its original purchase price -- even if home improvements were made.
A homeowner must be current on his mortgage payments to qualify
A second, verifying appraisal may be necessary, depending on loan traits
Co-signers may not be added to the mortgage note in order to qualify
The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009. The loan does not need to be "locked" -- only registered.
after April 1st, the highest Loan to Value for any refinance will be 85%. FHA loans are for loan amounts up to $303,750 in the Charlotte Area. If you think you could benefit from a refinace to get some cash to pay off other debts, buy a second home, or other reasons, please call us at 704-541-1171 or visit www.Piedmont-Mortgage.com.
Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home's value to 85%.
In its official press release, the FHA days it's making the change to "limit its exposure to undue risk".
It also lists the following cash-out requirements:
With less than 12 months since the purchase date, a home's value cannot exceed its original purchase price -- even if home improvements were made.
A homeowner must be current on his mortgage payments to qualify
A second, verifying appraisal may be necessary, depending on loan traits
Co-signers may not be added to the mortgage note in order to qualify
The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009. The loan does not need to be "locked" -- only registered.
after April 1st, the highest Loan to Value for any refinance will be 85%. FHA loans are for loan amounts up to $303,750 in the Charlotte Area. If you think you could benefit from a refinace to get some cash to pay off other debts, buy a second home, or other reasons, please call us at 704-541-1171 or visit www.Piedmont-Mortgage.com.
Immigration Policy Could Solve Housing Crisis
An interesting editorial in the WSJ proposes allowing immigrants to be allowed in the US if they buy a home - eat up the excess inventory, stabilize prices, buy furniture, start companies. If they sell or rent in the first two years, they have to return home, after 5 years, they would get permanent resident status. Read more here: http://online.wsj.com/article/SB123725421857750565.html. This is a bi-partisan idea that has a lot of merit - maybe add net worth, education, or job skills requirements - attract the best and brightest who are able to immediately contribute to society.
Thursday, March 26, 2009
New Home Sales Figures Show Unexpected Improvement
The national housing market got its third piece of good news in 3 days:
Monday: Existing Home Sales up
Tuesday: Home values appear higher nationally
Wednesday: New Home Sales up
And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it's time to get off the sidelines.
At least, that's what the data is showing us. According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.
The stimulus package's $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.
But lest we carried away, we can't forget that February's New Home Sales is still the second-lowest tally on record and that two months of data doesn't define "turnaround".
On the other hand, if the trend continues through the Spring Buying Season, we'll likely look back at Winter 2009 as the low point in housing.
Monday: Existing Home Sales up
Tuesday: Home values appear higher nationally
Wednesday: New Home Sales up
And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it's time to get off the sidelines.
At least, that's what the data is showing us. According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.
The stimulus package's $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.
But lest we carried away, we can't forget that February's New Home Sales is still the second-lowest tally on record and that two months of data doesn't define "turnaround".
On the other hand, if the trend continues through the Spring Buying Season, we'll likely look back at Winter 2009 as the low point in housing.
Monday, March 9, 2009
Will the Mortgage Relief Program Help YOU?
The Original Objective: When the White House first introduced the "Making Home Affordable" program in February 2009, it was positioned as a mortgage program with two goals: 1)To help financially-needy homeowners get the mortgage relief they needed, and 2) To help homeowners who’ve lost equity to qualify for today’s low rates
The Result Of The New Program: On March 4th, the U.S. Treasury finally introduced new details about Making Home Affordable. It also created an ”Am I Eligible For Making Home Affordable” form on its website. It’s pretty handy, you should also check IT out.
In the press release, the Treasury detailed the President’s original plans from February. Mostly, it provided explicit loan modification instructions that will assist up to 4 million delinquent homeowners and their respective mortgage servicers.
Get ready to read though, the modification guidelines are a thorough 17 pages long and leave little question about the whole loan modification process, and how it must be carried out. I guarantee it’s not an easy process. Loan modifications aren’t new, they’ve been around for a while.
The Disappointment: For as much that was as said for helping delinquent homeowners, the Treasury gave surprisingly little guidance to the estimated 5 million homeowners for who’s homes value have declined significantly. This makes it practically impossible for these folks to refinance.
For these Americans, the Treasury instead offers a basic Q&A and directs homeowners to call Fannie Mae and/or Freddie Mac to confirm their eligibility. The “refinance plan”, in summary, says that a homeowner who has paid his mortgage as agreed and whose home value is “about the same or less” as the amount owed on his first mortgage may be eligible.
Until Fannie or Freddie release details on this (none as this is written), you can pretty much call this a tease. There’s nothing available that is different at this point.
If after browsing the website, you still have questions about the Making Home Affordable program, call me or your mortgage lender with specific questions. Realize if you call your current mortgage servicer, they will be overwhelmed with phone calls and you will just be dealing with someone in a call center each time you call. If you are in the Carolina's and prefer talking with the same person each time, I’d be happy to help! All of my contact information is on the right side of this page.
Wednesday, March 4, 2009
From The IRS : The First-Time Homebuyer Credit Form
From The IRS : The First-Time Homebuyer Credit Form
As part of the American Recovery and Reinvestment Act of 2009, the IRS has officially released Form 5405 -- better known as the First-Time Homebuyer Credit Form.
True to tax code standards, the 10-field form is accompanied by 3 pages of instructions.
Form 5405 is a helpful, go-to resource for home buyers with questions about the tax credit.
For example, the form distinguishes tax consequences for homes bought in 2008 versus 2009, and clearly defines the term "first-time home buyer".
In addition, Form 5405 highlights the math behind the tax credit. In general, the First-Time Homebuyer Credit is equal to the lesser of:
$8,000 for homes bought in 2009
10 percent of the home's purchase price
Married couples filing separately are entitled to half of the expected credit, and homes sold within 3 years are subject to a credit repayment in the year the home ceases to be the "main home".
Form 5405 is a comprehensive reference. However, be sure to check with your accountant for specific questions about your personal returns and how the First-Time Homebuyer Credit may impact your finances. There is no substitute for professional, paid advice.
As part of the American Recovery and Reinvestment Act of 2009, the IRS has officially released Form 5405 -- better known as the First-Time Homebuyer Credit Form.
True to tax code standards, the 10-field form is accompanied by 3 pages of instructions.
Form 5405 is a helpful, go-to resource for home buyers with questions about the tax credit.
For example, the form distinguishes tax consequences for homes bought in 2008 versus 2009, and clearly defines the term "first-time home buyer".
In addition, Form 5405 highlights the math behind the tax credit. In general, the First-Time Homebuyer Credit is equal to the lesser of:
$8,000 for homes bought in 2009
10 percent of the home's purchase price
Married couples filing separately are entitled to half of the expected credit, and homes sold within 3 years are subject to a credit repayment in the year the home ceases to be the "main home".
Form 5405 is a comprehensive reference. However, be sure to check with your accountant for specific questions about your personal returns and how the First-Time Homebuyer Credit may impact your finances. There is no substitute for professional, paid advice.
Thursday, February 26, 2009
The Key Fact Missing From Today's Existing Home Sales Headlines
In reading the headlines this morning, you'd think that last month's Existing Home Sales figure signaled more trouble ahead for the housing market.
Quite the contrary.
Beyond the attention-grabbing headlines is the real story; the one that shows -- once again -- that housing market fundaments are coming back into balance.
As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.
Banks have put the brakes on foreclosures
Economic uncertainty is reducing job-related relocations
Builders have all but stopped building new homes
The national housing supply is as low as it's been in more than a year.
Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008.
Demand for homes is expected to rise, too:
The Federal Reserve is trying to hold mortgage rates low
Fannie Mae is opening its checkbook to real estate investors
The stimulus package is granting tax credits to first-timers
So, it's not that the headlines are wrong; it's just that they're incomplete.
In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.
Quite the contrary.
Beyond the attention-grabbing headlines is the real story; the one that shows -- once again -- that housing market fundaments are coming back into balance.
As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.
Banks have put the brakes on foreclosures
Economic uncertainty is reducing job-related relocations
Builders have all but stopped building new homes
The national housing supply is as low as it's been in more than a year.
Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008.
Demand for homes is expected to rise, too:
The Federal Reserve is trying to hold mortgage rates low
Fannie Mae is opening its checkbook to real estate investors
The stimulus package is granting tax credits to first-timers
So, it's not that the headlines are wrong; it's just that they're incomplete.
In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.
Wednesday, February 25, 2009
The Relative Cost Of Owning Versus Renting Is Back At Historical Norms
One popular housing theory is that -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.
If that belief is a truth, a national return to rising home prices may be in store for 2009.
Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.
This is the exact 18-year historical average and not since 2001 has the gap been this small.
As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.
But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.
This, too, is thought to be a key element of the housing recovery.
In many markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.
One popular housing theory is that -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.
If that belief is a truth, a national return to rising home prices may be in store for 2009.
Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.
This is the exact 18-year historical average and not since 2001 has the gap been this small.
As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.
But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.
This, too, is thought to be a key element of the housing recovery.
In many markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.
The decline in home prices, the reduced number of home buyers, the $8,000 tax credit and the low interest rates may make the Spring of 2009 the best time in many years for first time home buyers.
(Image courtesy: Wall Street Journal)
(Image courtesy: Wall Street Journal)
Wednesday, February 18, 2009
How The Stimulus Bill Indirectly Lowered Mortgage Rates
The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado. Also Tuesday, stock markets fell near their November 2008 lows.
The two moves are related.
With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.
Traders ended undecided on that issue today, but resolute in something else -- that whatever change the stimulus bill will bring, it's not going to come fast enough to help.
The sell-off in equities was a boon to home buyers. For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close.
Conforming mortgage rates were down on the day. Longer-term, though, this pattern won't likely last. Not only will the stock market regain its balance and draw dollars back, but, more importantly, the stimulus bill contained verbiage increasing the national debt ceiling by 53.4 percent. Government debt is often financed by printing more money and this leads to inflation, the enemy of mortgage rates.
For now, the stimulus plan is helping mortgage markets, albeit indirectly. If you're shopping for home loan, consider locking quickly. When markets flip -- and they always do -- it figures to be sudden.
(Image courtesy: Recovery.gov)
The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado. Also Tuesday, stock markets fell near their November 2008 lows.
The two moves are related.
With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.
Traders ended undecided on that issue today, but resolute in something else -- that whatever change the stimulus bill will bring, it's not going to come fast enough to help.
The sell-off in equities was a boon to home buyers. For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close.
Conforming mortgage rates were down on the day. Longer-term, though, this pattern won't likely last. Not only will the stock market regain its balance and draw dollars back, but, more importantly, the stimulus bill contained verbiage increasing the national debt ceiling by 53.4 percent. Government debt is often financed by printing more money and this leads to inflation, the enemy of mortgage rates.
For now, the stimulus plan is helping mortgage markets, albeit indirectly. If you're shopping for home loan, consider locking quickly. When markets flip -- and they always do -- it figures to be sudden.
(Image courtesy: Recovery.gov)
Thursday, February 5, 2009
How Today's Mortgage Rates Impact Home Affordability
Comparing July's conforming mortgage rates to today's average rates, there's a 1.5 percent difference in favor of homeowners.Rate drops like that make big differences in a household budget. Look at these before-and-after payments, based on rates from the chart:
$150,000 mortgage ($144 savings/month)
July 2008: $958 monthly
February 2009: $814 monthly
$250,000 mortgage ($240 savings/month)
July 2008: $1,597 monthly
February 2009: $1,357 monthly
$350,000 mortgage ($335 savings/month)
July 2008: $2,235 monthly
February 2009: $1,900 monthly
Of course, the other side of the story is that while mortgage rates fell in late-2008, the mandatory lender fees that accompanied them rose. That lessened some of the benefits of getting lower rates, but certainly not all of them.
According to recent housing data, buyers are back writing contracts and listed homes are selling quickly. Considering how mortgage rates have led monthly payments lower, maybe it shouldn't be much of a surprise.
There has never been a better time to buy. Rates are the lowest in 50 years, prices are lower than they have been in years, and there is not much competition for desirable homes. The only problem is for people who need to sell their home first. Maybe this is a good time to lose some money on the sale of your home and make even more of the purchase of your next home?
(Image courtesy: The Wall Street Journal) www.piedmont-mortgage.com
Tuesday, January 27, 2009
Did We Just See The First 2 Signs Of A Housing Recovery?
Don't let the plunging median sales price fool you -- December's Existing Home Sales data has home sellers smiling.
Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring's Buying Season could be a competitive one.
Falling home prices helped fuel home sales. Nationally, the median sales price -- the point at which half of all homes sold for more and half sold for less -- was $175,400, down $32,000 from last year.
However, the most important part of December's Existing Home Sales report isn't making headlines.
At December's sales pace, it would now take 9.3 months to exhaust the existing home supply. Last month it was 11.2 months. This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices.
This is Supply and Demand at its most basic definition.
Economists have long said that the keystone of housing's recovery will be rebalancing in home supply. Coupled with the all-time low in housing starts, December's Existing Home Sales data signals future strength.
Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring's Buying Season could be a competitive one.
Falling home prices helped fuel home sales. Nationally, the median sales price -- the point at which half of all homes sold for more and half sold for less -- was $175,400, down $32,000 from last year.
However, the most important part of December's Existing Home Sales report isn't making headlines.
At December's sales pace, it would now take 9.3 months to exhaust the existing home supply. Last month it was 11.2 months. This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices.
This is Supply and Demand at its most basic definition.
Economists have long said that the keystone of housing's recovery will be rebalancing in home supply. Coupled with the all-time low in housing starts, December's Existing Home Sales data signals future strength.
Friday, January 23, 2009
Fannie Mae pricing adjustments and paying points
In response to the higher mortgage default rates being experienced by Fannie Mae and Freddie Mac (the largest buyers of 30 year fixed, conforming mortgages), the formal announcement of “Risk Based Pricing” was established during 2008. Before this was announced, a 30 year fixed loan was basically the same price for any borrower with a credit score of 660 or higher and a loan amount up to 95% of the home value. But now, Fannie and Freddie require pricing “add-ons” using a matrix of credit score and loan to value percentages. This risk based pricing is MANDATED by Fannie and Freddie, and is required of ALL lenders originating a conforming 30 year fixed.
Sometimes the interest rate can be increased to cover these add-on’s without having to pay them out of pocket, but that is becoming increasingly difficult in today’s market. Investors have changed the way they create rate sheet options, and they offer very little in the way of what is called “premium pricing”, which used to allow options for closing costs or points to be covered in return for a higher interest rate. But in today’s environment, sometimes the add-on’s must be paid in the form of points – to either keep the rate and corresponding payments as low as possible, or sometimes because there simply is no other way they can be covered.
The bottom line is – consumers can’t just call a lender and say “what’s your rate and closing costs?” There are simply so many unknowns with the combination of credit score, loan to value percentages, property type, etc… that any reputable lender should be upfront, and be clear that any quote given is based on an assumption of certain parameters.
We are here to provide honest, straightforward advice. If we can be of any assistance to you, your friends or your family feel free to contact us. We will take care of you and your referrals in the same upfront fashion as we always have. www.piedmont-mortgage.com
Sometimes the interest rate can be increased to cover these add-on’s without having to pay them out of pocket, but that is becoming increasingly difficult in today’s market. Investors have changed the way they create rate sheet options, and they offer very little in the way of what is called “premium pricing”, which used to allow options for closing costs or points to be covered in return for a higher interest rate. But in today’s environment, sometimes the add-on’s must be paid in the form of points – to either keep the rate and corresponding payments as low as possible, or sometimes because there simply is no other way they can be covered.
The bottom line is – consumers can’t just call a lender and say “what’s your rate and closing costs?” There are simply so many unknowns with the combination of credit score, loan to value percentages, property type, etc… that any reputable lender should be upfront, and be clear that any quote given is based on an assumption of certain parameters.
We are here to provide honest, straightforward advice. If we can be of any assistance to you, your friends or your family feel free to contact us. We will take care of you and your referrals in the same upfront fashion as we always have. www.piedmont-mortgage.com
Wednesday, January 21, 2009
Interactive Home Values Chart
An Interactive Chart For Home Values
The S&P/Case-Shiller Home Price Index is a popular measure of domestic home prices, released monthly.
The index reports on the largest 20 U.S. markets, painting a broad picture of real estate values nationwide.
Despite the Case-Shiller Index's two obvious flaws -- (1) it only counts repeat sales on single-family residences, and (2) it only includes 20 major housing markets -- the model is helpful in identifying broader real estate trends in our nation's largest cities.
But data is just data. Sometimes, it takes a good picture to bring it all home. Enter The New York Times.
On its website, The Gray Lady posted an interactive Case-Shiller graphic. For each of the 20 cities studied, users can compare how home values rose versus the national composite throughout the early part of the decade, and how values have fallen since.
Not surprisingly, of the 20 cities that showed stable growth pre-2006, nearly all are outperforming in the current real estate climate. From looking at it, it seems Charlotte has fared better than most if not all.
The S&P/Case-Shiller Home Price Index is a popular measure of domestic home prices, released monthly.
The index reports on the largest 20 U.S. markets, painting a broad picture of real estate values nationwide.
Despite the Case-Shiller Index's two obvious flaws -- (1) it only counts repeat sales on single-family residences, and (2) it only includes 20 major housing markets -- the model is helpful in identifying broader real estate trends in our nation's largest cities.
But data is just data. Sometimes, it takes a good picture to bring it all home. Enter The New York Times.
On its website, The Gray Lady posted an interactive Case-Shiller graphic. For each of the 20 cities studied, users can compare how home values rose versus the national composite throughout the early part of the decade, and how values have fallen since.
Not surprisingly, of the 20 cities that showed stable growth pre-2006, nearly all are outperforming in the current real estate climate. From looking at it, it seems Charlotte has fared better than most if not all.
Friday, January 16, 2009
Mortgage Rates Are Falling But Loans Require More "Points"
Mortgage Rates Are Falling But Loans Require More "Points"
Another week, another screaming headline about mortgage rates falling to an all-time low.
Freddie Mac published its weekly mortgage rate survey Thursday and found that the "average" mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.
But, if we look beyond the headline, we find that there's another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not.
Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That's up from 0.6 percent last week and 0.4 percent a year ago.
A "point" is a fee equal to 1 percent of the loan size.
Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today's lender would require an extra $200 versus last week and $600 versus last year. Today's mortgage borrower would be subject to a $1,400 closing cost in addition to the "typical" closing costs accompanying a purchase or refinance.
This is a period of historically low rates -- there's no doubt about that. However, the cost of getting access to low rates is increasing. The press doesn't always tell that part of the story and it's one more reason to look deeper than the headlines.
The rates here are the national averages. Rates in the Soputheast US tend to be below the national average, and by comparing 54 lenders in real time, we consistently are offering better than average rates. www.piedmont-mortgage.com
Another week, another screaming headline about mortgage rates falling to an all-time low.
Freddie Mac published its weekly mortgage rate survey Thursday and found that the "average" mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.
But, if we look beyond the headline, we find that there's another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not.
Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That's up from 0.6 percent last week and 0.4 percent a year ago.
A "point" is a fee equal to 1 percent of the loan size.
Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today's lender would require an extra $200 versus last week and $600 versus last year. Today's mortgage borrower would be subject to a $1,400 closing cost in addition to the "typical" closing costs accompanying a purchase or refinance.
This is a period of historically low rates -- there's no doubt about that. However, the cost of getting access to low rates is increasing. The press doesn't always tell that part of the story and it's one more reason to look deeper than the headlines.
The rates here are the national averages. Rates in the Soputheast US tend to be below the national average, and by comparing 54 lenders in real time, we consistently are offering better than average rates. www.piedmont-mortgage.com
Thursday, January 15, 2009
The slowing economy is good news for Home Buyers
After a weak holiday shopping season, annual retail sales declined in 2008.
It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.
It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought. A pullback in spending -- especially during the shopping-heavy month of December -- highlights the cautious nature of today's American shoppers.
And in a strange sort of way, all of this may end up being good news for Spring home buyers.
Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention. Inflation, you'll remember, causes mortgage rates to rise. It's absence, therefore, helps to keep mortgage rates low.
In addition, it's earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average. As dollars leave the stock market, investors are parking them in the safer world of bonds. This includes mortgage bonds, of course, which further pressures rates lower.
As we're seeing, economic weakness -- to a point -- can be the friend of a person in need of a new home loan. For active home buyers or people entering the market this Spring, therefore, the timing may be just right.
It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.
It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought. A pullback in spending -- especially during the shopping-heavy month of December -- highlights the cautious nature of today's American shoppers.
And in a strange sort of way, all of this may end up being good news for Spring home buyers.
Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention. Inflation, you'll remember, causes mortgage rates to rise. It's absence, therefore, helps to keep mortgage rates low.
In addition, it's earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average. As dollars leave the stock market, investors are parking them in the safer world of bonds. This includes mortgage bonds, of course, which further pressures rates lower.
As we're seeing, economic weakness -- to a point -- can be the friend of a person in need of a new home loan. For active home buyers or people entering the market this Spring, therefore, the timing may be just right.
Wednesday, January 14, 2009
When is a 5.0% mortgage really 3.6 Percent?
An oft-touted benefit of homeownership is its tax benefits. However, like most IRS-related items, understanding how the benefits work is not always clear.
In general, homeowners are entitled to two home-related tax deductions -- one for annual mortgage interest paid, and one for real estate tax bills paid.
Not everyone is eligible, though. Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.
The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:
Sum your annual mortgage interest and real estate taxes paid
Find your tax rate on the IRS tax bracket schedule
Multiple your tax rate by the sum from Step 1
This is grossly simplified, but fairly accurate.
As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits.
The availability of mortgage interest tax deductions is one reason why loan officers make reference to "after-tax mortgage rates". An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:
(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 - Marginal Tax Rate)
The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.
Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions.
In general, homeowners are entitled to two home-related tax deductions -- one for annual mortgage interest paid, and one for real estate tax bills paid.
Not everyone is eligible, though. Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.
The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:
Sum your annual mortgage interest and real estate taxes paid
Find your tax rate on the IRS tax bracket schedule
Multiple your tax rate by the sum from Step 1
This is grossly simplified, but fairly accurate.
As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits.
The availability of mortgage interest tax deductions is one reason why loan officers make reference to "after-tax mortgage rates". An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:
(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 - Marginal Tax Rate)
The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.
Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions.
Wednesday, January 7, 2009
Rates lower, FNMA / Freddie Fees higher
With respect to mortgage rates, you can't always believe what you read in the papers. Or what you see.A terrific example is the chart at right.
Published by Freddie Mac, it shows the 30-year fixed mortgage's "going rate" as reported by the nation's mortgage lenders. On December 30, 2008, that rate was 5.1 percent.
But 5.1 percent is only half of the relevant information. There's a mandated fee schedule that accompanies the Freddie Mac-reported rate survey.
Currently, the published fee required to get a 5.1 percent mortgage rates is 0.7% of the borrowed amount, or $700 per $100,000 borrowed. This fee is more commonly known as "points" and versus last year, it's nearly doubled from 0.4 points.
So, yes, conforming mortgage rates are low and they have fallen near all-time lows but there's more to the story than just the interest rate -- there are the fees that go with them, too.
Mortgage rates and loan fees often move in opposite directions so to get lower rates, consider paying additional points. Conversely, to face fewer fees, accept a higher rate. It's a trade-off and your loan officer can help you best understand the choices.
Tuesday, January 6, 2009
2009 predictions
Predictions For 2009? Keep 'Em To Yourself, and I will, too!
The New Year is not yet one week old but that's not stopping market "experts" from predicting what's in store for 2009.
The calls on housing and mortgage rates run the gamut:
Home prices have farther to fall
Home prices have touched bottom
Mortgage rates will dip
Mortgage rates will rise
Put it all together and it's clear that the experts have no better idea about the future than you or I. Their guesses are educated ones, but they're guesses nonetheless.
A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds.
In 2008, only one earned a positive return. That one fund represents zero-point-zero-six percent of all tracked mutual funds. Surely, the fund managers of the other 99.94% didn't expect to post negative returns on the year.
So, before you use predictions about the demise (or recovery) of the broader economy to make "personal economy" decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.
All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too. By 2010, both could be lower still.
Or they may not.
Bottom line: if you need a new place to live, this is a great time to buy. If you sacrice your quality of living while hoping for lower prices or rates, you may only end up with lower quality of life!
The New Year is not yet one week old but that's not stopping market "experts" from predicting what's in store for 2009.
The calls on housing and mortgage rates run the gamut:
Home prices have farther to fall
Home prices have touched bottom
Mortgage rates will dip
Mortgage rates will rise
Put it all together and it's clear that the experts have no better idea about the future than you or I. Their guesses are educated ones, but they're guesses nonetheless.
A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds.
In 2008, only one earned a positive return. That one fund represents zero-point-zero-six percent of all tracked mutual funds. Surely, the fund managers of the other 99.94% didn't expect to post negative returns on the year.
So, before you use predictions about the demise (or recovery) of the broader economy to make "personal economy" decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.
All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too. By 2010, both could be lower still.
Or they may not.
Bottom line: if you need a new place to live, this is a great time to buy. If you sacrice your quality of living while hoping for lower prices or rates, you may only end up with lower quality of life!
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