Get Pre-qualified!
Before we can find the perfect home and negotiate the best price and terms, we have to tackle the most difficult part of the transaction - finding out how much house you can afford and the perfect loan for that house. To present the offer on the home you want successfully, you must have a solid loan pre-qualification letter.
Every homebuyer should do comparison shopping among lenders. I can refer you to several reputable lending institutions or mortgage brokers as well. Once you've made a choice, the loan officer will take your application and have you sign all the necessary papers to authorize credit and employment verifications.
Request periodic progress reports to make sure that all of the details are taken care of. These reports will help to ensure that any potential problems are discovered and addressed before they can threaten the timeliness of the transaction.
You will find the home buying process much less stressful when you know you can afford that special property. Loan pre-qualification puts you in the driver's seat!
Thursday, May 03, 2007
Saturday, April 28, 2007
Fix it, don't gimmick it
Some sellers get sidetracked in their effort to attract buyers, especially in a market that no longer decidedly favors sellers. For instance, some sellers think the best way to attract buyers to their home is to offer an incentive to the buyer's real estate agent, such as a trip somewhere at closing. Although, an agent perk might result in a showing or two, it's unlikely to affect a buyer's decision to buy.
It would make more sense to provide an incentive to buyers. That is, if incentives work. However, the promise of a free trip stands little chance of convincing today's value-conscious buyers that they should buy your home. When builders have trouble moving a new product, they offer meaningful incentives, such as upgraded finishes or landscaping, which actually add value to the property.
Don't offer gimmicks; instead, correct defects -- cosmetic and structural -- and price the property right. The biggest incentive you can give a buyer is a well-prepared home that's listed for a realistic price. The listings that are selling in today's market are priced right for the market, they look good and there's no doubt in anyone's mind that the property is available.
Selecting a listing agent who understands how to sell homes like yours in this market is one of the keys to distinguishing your listing from the others. A good agent will speak candidly with you about the probable selling price of your home. An experienced agent will also be able to advise you about what work is worthwhile to do to your home prior to marketing.
Before you even begin preparing your home for sale, it's a good idea to consult with your agent to make sure that the improvements you have in mind are worthwhile. Good agents are in tune with home-buyer preferences such as paint colors, lighting fixtures and floor coverings. Your agent can put you in touch with home stagers and designers who can help you select the right colors and floors.
Good merchandising is critical to a successful home sale, particularly when there are many listings on the market. Before you sign a listing, make sure that your agent will provide you a marketing campaign that will attract as many buyers as possible to your home.
Exposure is essential. You want an agent who will provide your home with extensive exposure to the local and broader markets, and who will also pay close attention to the quality of exposure your home receives.
HOME SELLER TIP: Internet advertising has revolutionized the way the residential real estate is sold. So, it's important that your agent's marketing plan include broad internet exposure. At a minimum, your home should be listed, with photos, on www.realtor.com, the largest residential real estate Web site.
Recent studies show that 80 percent of home buyers use the Internet during the course of their home purchase. Studies also show that buyers reject a listing if it doesn't have photos because they think there must be something wrong with it.
Not only do you need photos of your home on the Internet, but they need to be good photos. Home buyers who have limited time screen the inventory of homes for sale online and eliminate listings based on the photos. Make sure that your agent provides good-quality photos of your property.
Avoid the temptation to oversell your property. A buyer who was recently looking for a luxury home complained that the photos of many listings she'd seen were so good that she was often disappointed when she saw the properties in person.
- Dian Hymer
- from my monthly Newsletter - Jack McSweeney
It would make more sense to provide an incentive to buyers. That is, if incentives work. However, the promise of a free trip stands little chance of convincing today's value-conscious buyers that they should buy your home. When builders have trouble moving a new product, they offer meaningful incentives, such as upgraded finishes or landscaping, which actually add value to the property.
Don't offer gimmicks; instead, correct defects -- cosmetic and structural -- and price the property right. The biggest incentive you can give a buyer is a well-prepared home that's listed for a realistic price. The listings that are selling in today's market are priced right for the market, they look good and there's no doubt in anyone's mind that the property is available.
Selecting a listing agent who understands how to sell homes like yours in this market is one of the keys to distinguishing your listing from the others. A good agent will speak candidly with you about the probable selling price of your home. An experienced agent will also be able to advise you about what work is worthwhile to do to your home prior to marketing.
Before you even begin preparing your home for sale, it's a good idea to consult with your agent to make sure that the improvements you have in mind are worthwhile. Good agents are in tune with home-buyer preferences such as paint colors, lighting fixtures and floor coverings. Your agent can put you in touch with home stagers and designers who can help you select the right colors and floors.
Good merchandising is critical to a successful home sale, particularly when there are many listings on the market. Before you sign a listing, make sure that your agent will provide you a marketing campaign that will attract as many buyers as possible to your home.
Exposure is essential. You want an agent who will provide your home with extensive exposure to the local and broader markets, and who will also pay close attention to the quality of exposure your home receives.
HOME SELLER TIP: Internet advertising has revolutionized the way the residential real estate is sold. So, it's important that your agent's marketing plan include broad internet exposure. At a minimum, your home should be listed, with photos, on www.realtor.com, the largest residential real estate Web site.
Recent studies show that 80 percent of home buyers use the Internet during the course of their home purchase. Studies also show that buyers reject a listing if it doesn't have photos because they think there must be something wrong with it.
Not only do you need photos of your home on the Internet, but they need to be good photos. Home buyers who have limited time screen the inventory of homes for sale online and eliminate listings based on the photos. Make sure that your agent provides good-quality photos of your property.
Avoid the temptation to oversell your property. A buyer who was recently looking for a luxury home complained that the photos of many listings she'd seen were so good that she was often disappointed when she saw the properties in person.
- Dian Hymer
- from my monthly Newsletter - Jack McSweeney
Monday, April 23, 2007
CPI update
Fueled by surging energy prices, the closely watched Consumer Price Index (CPI) shot up 0.6% in March, the biggest increase since a similar rise in April 2006. However, core inflation -- which excludes volatile energy and food prices -- rose 0.1% in March, the smallest increase in three months, and better than the 0.2% rise Wall Street had expected. Inflation for the first quarter of 2007 was 4.7%, far above the 2.5% increase for all of 2006.
The Conference Board said its Index of Leading Economic Indicators climbed a tepid 0.1% to 137.4 in March, as analysts had expected. The latest reading reverses two straight months of declines. The index is designed to forecast economic activity over the next three to six months.
Retail sales rose 0.7% in March, up from a 0.5% gain in February. It was the best showing since a 1.1% rise in December, the Commerce Department reported April 16. Analysts had predicted a 0.8% increase.
Construction of new homes edged up 0.8% in March, the second straight monthly rise, the Commerce Department reported April 17. Applications for new building permits also rose by 0.8% in March, the first advance in three months, providing a glimmer of hope that the worst of the housing downturn might be over.
For the week ending April 19, interest rates on 30-year and 15-year fixed-rate mortgages declined, remaining well below year-ago levels, Freddie Mac said April 19.
The Conference Board said its Index of Leading Economic Indicators climbed a tepid 0.1% to 137.4 in March, as analysts had expected. The latest reading reverses two straight months of declines. The index is designed to forecast economic activity over the next three to six months.
Retail sales rose 0.7% in March, up from a 0.5% gain in February. It was the best showing since a 1.1% rise in December, the Commerce Department reported April 16. Analysts had predicted a 0.8% increase.
Construction of new homes edged up 0.8% in March, the second straight monthly rise, the Commerce Department reported April 17. Applications for new building permits also rose by 0.8% in March, the first advance in three months, providing a glimmer of hope that the worst of the housing downturn might be over.
For the week ending April 19, interest rates on 30-year and 15-year fixed-rate mortgages declined, remaining well below year-ago levels, Freddie Mac said April 19.
Friday, March 23, 2007
Thursday, March 08, 2007
Stable Rates MAY Turn the Market Around
Mortgage interest rates are expected to remain relatively low throughout 2007, but whether that is enough to spark a full-fledged rebound of the real estate market this year is a subject of vigorous debate.
Low interest rates typically spell good news for home buyers and sellers since they lead to low mortgage payments and allow consumers to buy more house for the buck. But analysts are mixed about whether that stability will trigger increased sales.
Short-term rates are going to stay fairly steady," says Mike Fratantoni, senior economist with the Mortgage Bankers Association. "We also see the 30-year fixed mortgage rate creeping up -- about 6.2 percent today to about 6.5 percent by the end of the year -- and then basically holding steady from there.
The Mortgage Bankers Association isn't alone in its assessment of a fairly stable interest rate environment. In its January 2007 Economic Outlook, Freddie Mac predicted the interest rates for 30-year fixed mortgages will remain below 6.5 percent in 2007. The National Association of Realtors in its February 2007 forecast predicted that the interest rates for 30-year-fixed mortgages will rise to 6.7 percent by the second half of the year. But rates will rise in such a gradual manner that, potential buyers will have some time to weigh purchase decisions," NAR Chief Economist David Lereah said when the report was released.
So what's fueling this interest rate environment? Some say globalization. "Foreign investors are now extremely active in buying U.S. debt securities," Fratantoni says. "That adds another set of buyers to the market and helps keep rates down and fairly stable.
Could the interest rate environment change? "If, for some reason, foreign investors decided to stop investing in U.S. securities, we would see a spike in interest rates," Fratantoni says. "There is a risk there, but I don't think it's a likely outcome."
The rate effect
Nobody denies that low interest rates can spark the market.
"Just look at how a person's monthly payment changes on their home when the interest rate changes by 1 percentage point," says Chris Porter, senior consultant with Irvine, Calif.-based John Burns Real Estate Consulting. "It has a significant impact on their monthly payment." A $300,000 home, for example, would cost a buyer $1,610.46 per month with a 5 percent interest rate and $1,798.65 with a 6 percent interest rate -- nearly a $200-per-month difference. -Posted March 8, 2007 By Tamara E Holmes. Bankrate.com
Low interest rates typically spell good news for home buyers and sellers since they lead to low mortgage payments and allow consumers to buy more house for the buck. But analysts are mixed about whether that stability will trigger increased sales.
Short-term rates are going to stay fairly steady," says Mike Fratantoni, senior economist with the Mortgage Bankers Association. "We also see the 30-year fixed mortgage rate creeping up -- about 6.2 percent today to about 6.5 percent by the end of the year -- and then basically holding steady from there.
The Mortgage Bankers Association isn't alone in its assessment of a fairly stable interest rate environment. In its January 2007 Economic Outlook, Freddie Mac predicted the interest rates for 30-year fixed mortgages will remain below 6.5 percent in 2007. The National Association of Realtors in its February 2007 forecast predicted that the interest rates for 30-year-fixed mortgages will rise to 6.7 percent by the second half of the year. But rates will rise in such a gradual manner that, potential buyers will have some time to weigh purchase decisions," NAR Chief Economist David Lereah said when the report was released.
So what's fueling this interest rate environment? Some say globalization. "Foreign investors are now extremely active in buying U.S. debt securities," Fratantoni says. "That adds another set of buyers to the market and helps keep rates down and fairly stable.
Could the interest rate environment change? "If, for some reason, foreign investors decided to stop investing in U.S. securities, we would see a spike in interest rates," Fratantoni says. "There is a risk there, but I don't think it's a likely outcome."
The rate effect
Nobody denies that low interest rates can spark the market.
"Just look at how a person's monthly payment changes on their home when the interest rate changes by 1 percentage point," says Chris Porter, senior consultant with Irvine, Calif.-based John Burns Real Estate Consulting. "It has a significant impact on their monthly payment." A $300,000 home, for example, would cost a buyer $1,610.46 per month with a 5 percent interest rate and $1,798.65 with a 6 percent interest rate -- nearly a $200-per-month difference. -Posted March 8, 2007 By Tamara E Holmes. Bankrate.com
Friday, February 09, 2007
Poole sees moderate growth, falling inflation in '07
Feb 9, 2007
WASHINGTON (MarketWatch) -- The U.S. economy should grow at a sustainable pace while inflation should continue to decline, said William Poole, the president of the St. Louis Fed bank, in a speech presenting his outlook on Friday.
"As I step back and survey the economic landscape, I see an economy that appears to be transitioning quite nicely from last year's slow patch, to more sustainable growth," Poole said in a speech prepared for delivery to the AAIM Management Association in St. Louis.
Poole, a voting FOMC member this year, is one of three top Fed officials discussing the economic outlook on Friday. Next week, Fed chief Ben Bernanke will deliver the Fed's formal economic forecast to Congress when he testifies on Fed monetary policy.
Financial markets pay close attention to speeches by the St. Louis Fed president. A recent study of market impact of Fed speakers listed Poole as the second most market-moving Fed official after Bernanke.
In his speech, Poole was upbeat on growth and inflation. He said the economy was fundamentally sound and that past Fed actions had kept inflation largely in check.
In common with speeches recently from other top Fed policy makers, Poole said there were tentative signs that the housing market was stabilizing, but he was very cautious not to declare victory. Housing was a significant drag on GDP growth in 2006.
"While recent data seem to point in a favorable direction, we must recognize that the housing market is not out of the woods yet," Poole said.
Most importantly, there is no evidence that home prices have stabilized after pervasive weakness last year, he said.
Poole said inflation was headed in the right direction and should fall into a "reasonable range" this year.
But Poole said he would fight for higher rates if core inflation "seems to be settling at a rate above 2%.
Poole said he detected a "firmer tone" in the most recent economic data.
Poole also said more rate hikes may be needed if growth in 2007 comes in stronger than expected.
Poole presented his personal inflation target, saying he would "do what I can to promote policy adjustments that will yield an inflation outcome, on average over a period of several years, centered on 1.5% on the core PCE price index."
Greg Robb is a senior reporter for MarketWatch in Washington.
WASHINGTON (MarketWatch) -- The U.S. economy should grow at a sustainable pace while inflation should continue to decline, said William Poole, the president of the St. Louis Fed bank, in a speech presenting his outlook on Friday.
"As I step back and survey the economic landscape, I see an economy that appears to be transitioning quite nicely from last year's slow patch, to more sustainable growth," Poole said in a speech prepared for delivery to the AAIM Management Association in St. Louis.
Poole, a voting FOMC member this year, is one of three top Fed officials discussing the economic outlook on Friday. Next week, Fed chief Ben Bernanke will deliver the Fed's formal economic forecast to Congress when he testifies on Fed monetary policy.
Financial markets pay close attention to speeches by the St. Louis Fed president. A recent study of market impact of Fed speakers listed Poole as the second most market-moving Fed official after Bernanke.
In his speech, Poole was upbeat on growth and inflation. He said the economy was fundamentally sound and that past Fed actions had kept inflation largely in check.
In common with speeches recently from other top Fed policy makers, Poole said there were tentative signs that the housing market was stabilizing, but he was very cautious not to declare victory. Housing was a significant drag on GDP growth in 2006.
"While recent data seem to point in a favorable direction, we must recognize that the housing market is not out of the woods yet," Poole said.
Most importantly, there is no evidence that home prices have stabilized after pervasive weakness last year, he said.
Poole said inflation was headed in the right direction and should fall into a "reasonable range" this year.
But Poole said he would fight for higher rates if core inflation "seems to be settling at a rate above 2%.
Poole said he detected a "firmer tone" in the most recent economic data.
Poole also said more rate hikes may be needed if growth in 2007 comes in stronger than expected.
Poole presented his personal inflation target, saying he would "do what I can to promote policy adjustments that will yield an inflation outcome, on average over a period of several years, centered on 1.5% on the core PCE price index."
Greg Robb is a senior reporter for MarketWatch in Washington.
Wednesday, January 31, 2007
The Conference Board Consumer Confidence Index Improves Slightly, But Expectations Soften
January 30, 2007
The Conference Board Consumer Confidence Index, which had improved in December, edged up slightly in January. The Index now stands at 110.3 (1985=100), up from 110.0 in December. The Present Situation Index increased to 133.9 from 130.5. The Expectations Index, however, declined to 94.5 from 96.3 last month.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for January's preliminary results was January 23rd.
"This month's slight increase in confidence was solely the result of an improvement in the Present Situation Index, fueled primarily by a more favorable job market," says Lynn Franco, Director of The Conference Board Consumer Research Center. "Looking ahead, however, consumers are not as optimistic as they were in December. All in all, the Index suggests a moderate improvement in the pace of growth in early 2007."
Consumers' overall assessment of current-day conditions was more upbeat than in December. Those claiming conditions are "good" increased to 28.1 percent from 27.4 percent. Those saying conditions are "bad," however, rose to 16.5 percent from 14.9 percent. Labor market conditions also improved from last month. Consumers saying jobs are "hard to get" declined to 19.7 percent from 21.3 percent. Those claiming jobs are "plentiful" increased to 29.9 percent from 27.6 percent in December.
Consumers' outlook for the next six months was less optimistic than in December. Those anticipating business conditions to worsen edged up to 8.0 percent from 7.8 percent. Those expecting business conditions to get better decreased slightly to 16.2 percent from 16.7 percent.
The outlook for the labor market was mixed. Consumers expecting more jobs to become available in the coming months edged up to 14.0 percent from 13.9 percent, while those anticipating fewer jobs edged up to 15.7 percent from 15.5 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined to 19.8 percent from 21.4 percent in December.
The next release is scheduled for February 27, Tuesday at 10 A.M. ET.
The Conference Board Consumer Confidence Index, which had improved in December, edged up slightly in January. The Index now stands at 110.3 (1985=100), up from 110.0 in December. The Present Situation Index increased to 133.9 from 130.5. The Expectations Index, however, declined to 94.5 from 96.3 last month.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for January's preliminary results was January 23rd.
"This month's slight increase in confidence was solely the result of an improvement in the Present Situation Index, fueled primarily by a more favorable job market," says Lynn Franco, Director of The Conference Board Consumer Research Center. "Looking ahead, however, consumers are not as optimistic as they were in December. All in all, the Index suggests a moderate improvement in the pace of growth in early 2007."
Consumers' overall assessment of current-day conditions was more upbeat than in December. Those claiming conditions are "good" increased to 28.1 percent from 27.4 percent. Those saying conditions are "bad," however, rose to 16.5 percent from 14.9 percent. Labor market conditions also improved from last month. Consumers saying jobs are "hard to get" declined to 19.7 percent from 21.3 percent. Those claiming jobs are "plentiful" increased to 29.9 percent from 27.6 percent in December.
Consumers' outlook for the next six months was less optimistic than in December. Those anticipating business conditions to worsen edged up to 8.0 percent from 7.8 percent. Those expecting business conditions to get better decreased slightly to 16.2 percent from 16.7 percent.
The outlook for the labor market was mixed. Consumers expecting more jobs to become available in the coming months edged up to 14.0 percent from 13.9 percent, while those anticipating fewer jobs edged up to 15.7 percent from 15.5 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined to 19.8 percent from 21.4 percent in December.
The next release is scheduled for February 27, Tuesday at 10 A.M. ET.
Thursday, January 04, 2007
Annual Percentage Rate / What is the Real Cost of Financing?
Annual Percentage Rate (APR) is a tool that consumers can use as a starting point to compare loan programs. However, it's important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon.
The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.
Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.
Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.
If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don't, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the homebuyer only expects to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.
The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.
The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.
Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.
Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.
If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don't, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the homebuyer only expects to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.
The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.
Tuesday, January 02, 2007
Fed may have to cut rates...
The dollar sagged against major rivals on Tuesday (1/2/07), as investors fretted that the Federal Reserve may have to cut interest rates if the U.S. economy shows signs of slowing further.
Monday, December 04, 2006
An Inverted Yield Curve
The U.S. economy, interest rates, and the housing market are frequent topics on the nightly news. Viewers are told about leading economic indicators, how the stock market has performed, and whether the Federal Reserve is planning on changing interest rates. What isn't explained is how these items are interrelated and how they may impact which home loan is best for you.
The Federal Reserve attempts to keep the U.S. economy healthy through its use of monetary policy. As fears of inflation increase, the Fed will raise certain short-term interest rates such as the federal funds rate, which is the interest rate banks pay each other for overnight loans. Such an increase causes a ripple effect, with banks raising their prime lending rate. This, in turn, causes an increase in Adjustable Rate Mortgage (ARM) rates and the indices they're tied to, such as the 12-Month Treasury Average (MTA), the 11th District Cost of Funds Index (COFI), and the 1-Month London Inter Bank Offering Rates (LIBOR).
Under normal circumstances, long-term interest rates would also increase even though they are determined by market trading of bonds and mortgage-backed securities rather than monetary policy. However, in certain instances, the market responds in an unexpected manner.
Long-term interest rates are driven by a desire to place money in a steady vehicle that will provide a decent rate of return. When the stock market is underperforming, many corporate and individual investors will sell stocks, and invest their money in bonds. Typically, the longer the holding period of a bond, the higher the yield it will offer. This makes sense because the longer an investor's money is tied up in that investment, the more they should receive for it. However, when there is an increased demand for bonds, the law of supply and demand comes into play. As the demand for bonds increases, the need to attract investors decreases, so the yield offered on those bonds declines.
When the Federal Reserve pursues an aggressive policy and raises short-term interest rates repeatedly over an extended period, and the bond and mortgage-backed securities markets are booming so their yields are lower, an unusual situation arises. Short-term interest rates are high while long-term interest rates remain lower. This leads to a shift in the usual yield-versus-term paradigm, known as an inverted yield curve.
The Federal Reserve attempts to keep the U.S. economy healthy through its use of monetary policy. As fears of inflation increase, the Fed will raise certain short-term interest rates such as the federal funds rate, which is the interest rate banks pay each other for overnight loans. Such an increase causes a ripple effect, with banks raising their prime lending rate. This, in turn, causes an increase in Adjustable Rate Mortgage (ARM) rates and the indices they're tied to, such as the 12-Month Treasury Average (MTA), the 11th District Cost of Funds Index (COFI), and the 1-Month London Inter Bank Offering Rates (LIBOR).
Under normal circumstances, long-term interest rates would also increase even though they are determined by market trading of bonds and mortgage-backed securities rather than monetary policy. However, in certain instances, the market responds in an unexpected manner.
Long-term interest rates are driven by a desire to place money in a steady vehicle that will provide a decent rate of return. When the stock market is underperforming, many corporate and individual investors will sell stocks, and invest their money in bonds. Typically, the longer the holding period of a bond, the higher the yield it will offer. This makes sense because the longer an investor's money is tied up in that investment, the more they should receive for it. However, when there is an increased demand for bonds, the law of supply and demand comes into play. As the demand for bonds increases, the need to attract investors decreases, so the yield offered on those bonds declines.
When the Federal Reserve pursues an aggressive policy and raises short-term interest rates repeatedly over an extended period, and the bond and mortgage-backed securities markets are booming so their yields are lower, an unusual situation arises. Short-term interest rates are high while long-term interest rates remain lower. This leads to a shift in the usual yield-versus-term paradigm, known as an inverted yield curve.
Wednesday, November 29, 2006
Conforming Loan Limit to Stay the Same in 2007
The maximum conforming loan limit will remain $417,000 for most homes that sell in 2007 because the average home price in October 2006 was lower than the average price in 2005, the Office of Federal Housing Enterprise Oversight says.
OFHEO sets this limit annually, capping the amount that government-chartered secondary mortgage market companies Fannie Mae and Freddie Mac can buy or guarantee. Generally, conforming rates are lower than “jumbo” loan rates that exceed the limit.
Alaska, Hawaii, Guam, and the U.S. Virgin Islands are recognized by OFHEO as ‘high-cost’ areas and the limits in parts of those states are higher.
OFHEO sets this limit annually, capping the amount that government-chartered secondary mortgage market companies Fannie Mae and Freddie Mac can buy or guarantee. Generally, conforming rates are lower than “jumbo” loan rates that exceed the limit.
Alaska, Hawaii, Guam, and the U.S. Virgin Islands are recognized by OFHEO as ‘high-cost’ areas and the limits in parts of those states are higher.
Tuesday, November 07, 2006
Negative Media?
The National Association of Home Builders has begun to offer a new PR kit for members to help pump up sales. The need for such an effort is obvious. As NAHB explains, the kit "provides a starting point for public relations campaigns to galvanize prospective home buyers who have been discouraged by negative reports in the media to go out and see for themselves the range of opportunities that have opened up in today's slower marketplace."
Yes folks, the reason more buyers are not snapping up homes is because of those negative, gloomy news reports. Real wages don't count, affordability is not important and reduced speculation is not a factor. It's the damned media.
Right.
It seems to me that the past few years have been pretty good for real estate. Existing home prices rose from $139,000 in 2000 to $220,000 this September, according to the National Association of Realtors. If it's true that negative news reports are causing the downturn of 2006, is it not equally true that "positive" news reports must have been the sole and only cause of the booming real estate market seen during the past five years? If yes, shouldn't reporters and columnists get free houses or something for their good work? Where are the keys to my new home from a grateful constituency?
Let's say home sales slowed and that reporters and columnists did their part and hid such trends from the public. Does anyone believe the public would not notice that homes in many areas are on the market longer or that prices are stagnating? Can it be the public follows in sheep-like fashion whatever it is that appears in the media? Judging from my email, there are lots of smart readers ready to discuss and debate just about any topic, often with great insight, wit and knowledge.
There are any number of reasons why the real estate market has slowed, none of them having to do with the musing of a few real estate writers.
"A faster-than-anticipated decline in housing following its unsustainable boom during the past three years has become a major drag on U.S. economic growth," said David Seiders, NAHB's chief economist, "and it is likely to subtract about a full percentage point from the Gross Domestic Product during the second half of this year and half that amount during the opening quarter of 2007."
Imagine that! The boom has been unsustainable according to NAHB's own chief economist. Now this is a piece of news that should be kept from the public.
Here's another one: "Recent declines in mortgage interest rates and energy prices have buoyed consumer attitudes and home buyer demand," Seiders said a few days ago. "Surveys of consumer sentiment show that increasing numbers of households view this as a good time to buy homes."
Is the evil media to blame for the growing number of households who believe this is a good time to buy homes? How did such buy-now attitudes evolve in the face of ongoing negative press reports?
Could it be that the public simply wants a better deal from new home builders? What would happen if home prices were cut? Here's what:
"More than three out of four builders are offering substantial sales incentives to move their product and limit cancellations, and this aggressive strategy is working -- making this an opportune time for home buyers to enter the market," said NAHB President David Pressly, a home builder from Statesville, N.C. "The market correction appears to be approaching the bottom in terms of sales volume, and we expect the supply-demand balance to improve considerably before long."
Is it fair to report that when builders lower prices -- whoops -- when builders offer "substantial sales incentives" -- that buyer interest goes up? Doesn't this seem like a fairly-obvious example of cause and effect, supply and demand?
Alternatively, some could believe there IS a cabal of evil real estate reporters and columnists. If so, it might work like this:
A bunch of journalists meet at my place about once every two weeks to set mortgage rates and then decide whether home sales nationwide should rise or fall. We cause such marketplace changes by deciding to produce positive or negative media coverage.
We can also levitate. We each have Swiss bank accounts and we're all members of an ancient cult. We know who will win football championships and horse races months in advance and bet accordingly -- that's how we finance operations, get money for political contributions and control the government.
Perhaps I've said too much ... . No doubt every paranoid blogger will soon be quoting the two paragraphs above as if they were something other than a joke.
Instead of mooing about "negative reports in the media" homebuilders ought to read their own news releases and data. Too many new homes are priced beyond what people are now willing to pay. The result is that unit volume will fall unless prices are reduced, regardless of what scribes and scriveners might write.
If you don't believe it, come to the next meeting. Party with the press. Learn how to levitate ... .
by Peter G. Miller
Yes folks, the reason more buyers are not snapping up homes is because of those negative, gloomy news reports. Real wages don't count, affordability is not important and reduced speculation is not a factor. It's the damned media.
Right.
It seems to me that the past few years have been pretty good for real estate. Existing home prices rose from $139,000 in 2000 to $220,000 this September, according to the National Association of Realtors. If it's true that negative news reports are causing the downturn of 2006, is it not equally true that "positive" news reports must have been the sole and only cause of the booming real estate market seen during the past five years? If yes, shouldn't reporters and columnists get free houses or something for their good work? Where are the keys to my new home from a grateful constituency?
Let's say home sales slowed and that reporters and columnists did their part and hid such trends from the public. Does anyone believe the public would not notice that homes in many areas are on the market longer or that prices are stagnating? Can it be the public follows in sheep-like fashion whatever it is that appears in the media? Judging from my email, there are lots of smart readers ready to discuss and debate just about any topic, often with great insight, wit and knowledge.
There are any number of reasons why the real estate market has slowed, none of them having to do with the musing of a few real estate writers.
"A faster-than-anticipated decline in housing following its unsustainable boom during the past three years has become a major drag on U.S. economic growth," said David Seiders, NAHB's chief economist, "and it is likely to subtract about a full percentage point from the Gross Domestic Product during the second half of this year and half that amount during the opening quarter of 2007."
Imagine that! The boom has been unsustainable according to NAHB's own chief economist. Now this is a piece of news that should be kept from the public.
Here's another one: "Recent declines in mortgage interest rates and energy prices have buoyed consumer attitudes and home buyer demand," Seiders said a few days ago. "Surveys of consumer sentiment show that increasing numbers of households view this as a good time to buy homes."
Is the evil media to blame for the growing number of households who believe this is a good time to buy homes? How did such buy-now attitudes evolve in the face of ongoing negative press reports?
Could it be that the public simply wants a better deal from new home builders? What would happen if home prices were cut? Here's what:
"More than three out of four builders are offering substantial sales incentives to move their product and limit cancellations, and this aggressive strategy is working -- making this an opportune time for home buyers to enter the market," said NAHB President David Pressly, a home builder from Statesville, N.C. "The market correction appears to be approaching the bottom in terms of sales volume, and we expect the supply-demand balance to improve considerably before long."
Is it fair to report that when builders lower prices -- whoops -- when builders offer "substantial sales incentives" -- that buyer interest goes up? Doesn't this seem like a fairly-obvious example of cause and effect, supply and demand?
Alternatively, some could believe there IS a cabal of evil real estate reporters and columnists. If so, it might work like this:
A bunch of journalists meet at my place about once every two weeks to set mortgage rates and then decide whether home sales nationwide should rise or fall. We cause such marketplace changes by deciding to produce positive or negative media coverage.
We can also levitate. We each have Swiss bank accounts and we're all members of an ancient cult. We know who will win football championships and horse races months in advance and bet accordingly -- that's how we finance operations, get money for political contributions and control the government.
Perhaps I've said too much ... . No doubt every paranoid blogger will soon be quoting the two paragraphs above as if they were something other than a joke.
Instead of mooing about "negative reports in the media" homebuilders ought to read their own news releases and data. Too many new homes are priced beyond what people are now willing to pay. The result is that unit volume will fall unless prices are reduced, regardless of what scribes and scriveners might write.
If you don't believe it, come to the next meeting. Party with the press. Learn how to levitate ... .
by Peter G. Miller
Monday, October 02, 2006
Pending-home sales rise 4.3% in August- Market may be stabilizing
Market may be stabilizing, realtors group says...
WASHINGTON (MarketWatch) -- Pending sales of U.S. existing homes rose by 4.3% in August, indicating the housing market may be stabilizing, the National Association of Realtors said
Monday. Pending-home sales are down 14.1% in the past year, the real estate industry group said.
"Our sense is that home sales may have reached a low in August," said David Lereah, chief economist for the NAR in a statement.
"With fewer new listings coming on the market, we should be able to draw down the inventory supply early next year to the point where home prices will rise, but at a slower pace than historic norms," Lereah said.
The pending-sales index rose 9.2% in the West, 4% in the South and 3.6% in the Northeast. The index was flat in the Midwest.
Sales are recorded as "pending" when a sales contract is signed; they are recorded as "sold" when the sale closes, usually one or two months later.
Existing-home sales fell 0.5% in August to a seasonally adjusted annual rate of 6.30 million, the lowest since January 2004. Meanwhile, median sales prices fell 1.7% on a year-on-year basis, the first decline in 11 years. The inventory of unsold homes rose to a 7.5-month supply, the most in 13 years.
In other reports released Monday, the Institute for Supply Management said its manufacturing sentiment index fell to 52.9% in September, the lowest since May 2005, signaling slower growth in the factory sector.
The Commerce Department said construction spending rose 0.3% in August despite a 1.5% drop in spending on housing.
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- Pending sales of U.S. existing homes rose by 4.3% in August, indicating the housing market may be stabilizing, the National Association of Realtors said
Monday. Pending-home sales are down 14.1% in the past year, the real estate industry group said.
"Our sense is that home sales may have reached a low in August," said David Lereah, chief economist for the NAR in a statement.
"With fewer new listings coming on the market, we should be able to draw down the inventory supply early next year to the point where home prices will rise, but at a slower pace than historic norms," Lereah said.
The pending-sales index rose 9.2% in the West, 4% in the South and 3.6% in the Northeast. The index was flat in the Midwest.
Sales are recorded as "pending" when a sales contract is signed; they are recorded as "sold" when the sale closes, usually one or two months later.
Existing-home sales fell 0.5% in August to a seasonally adjusted annual rate of 6.30 million, the lowest since January 2004. Meanwhile, median sales prices fell 1.7% on a year-on-year basis, the first decline in 11 years. The inventory of unsold homes rose to a 7.5-month supply, the most in 13 years.
In other reports released Monday, the Institute for Supply Management said its manufacturing sentiment index fell to 52.9% in September, the lowest since May 2005, signaling slower growth in the factory sector.
The Commerce Department said construction spending rose 0.3% in August despite a 1.5% drop in spending on housing.
By Rex Nutting, MarketWatch
Friday, September 15, 2006
Appraisals Get Tricky in a Cooling Market
The housing slowdown is making it increasingly difficult for appraisers to use comparable sales data in calculating a home's worth.
Gary Crabtree of Bakersfield, Calif.-based Affiliated Appraisers says he now takes into account pending sales, current list prices, supply and demand, time on the market, price fluctuations, defaults and trustee's sales, incentives, and the market perceptions of real estate agents.
Crabtree says valuations become complicated when real estate practitioners engage in "the re-list game," in which a home that has sat unsold for a long period of time is removed from the multiple listing service and re-listed with a new price and MLS code to make it look like a new listing.
"Just looking at historical data can be perilous," says Appraisal Institute spokesman John Bredemeyer, who explains, "You've got to answer the question: 'Where are we in this cycle?' And you've got to factor that into your valuation."
Source: Baltimore Sun, Ken Harney (09/15/06)
Gary Crabtree of Bakersfield, Calif.-based Affiliated Appraisers says he now takes into account pending sales, current list prices, supply and demand, time on the market, price fluctuations, defaults and trustee's sales, incentives, and the market perceptions of real estate agents.
Crabtree says valuations become complicated when real estate practitioners engage in "the re-list game," in which a home that has sat unsold for a long period of time is removed from the multiple listing service and re-listed with a new price and MLS code to make it look like a new listing.
"Just looking at historical data can be perilous," says Appraisal Institute spokesman John Bredemeyer, who explains, "You've got to answer the question: 'Where are we in this cycle?' And you've got to factor that into your valuation."
Source: Baltimore Sun, Ken Harney (09/15/06)
Prevent Foreclosure From Cashing You Out Of Home Ownership
While a growing number of consumers are looking to cash in on the changing real estate market, another group is trying to figure out how to keep from cashing out.
The 115,292 homes nationwide entering some stage of foreclosure in August remains historically low, but the rate of increase in the number is becoming alarming. August foreclosures represented a 24 percent increase from July -- the second highest this year -- foreclosures are up 38 percent for the year so far and 53 percent compared to where they were this time last year.
Blame it on those nasty mortgage IEDs (Improvised Equity Devices) -- high leverage, high risk loans that are easy to come by, but financially explosive as time goes by.
Mortgage IEDs are typically ARMs, in a host of varieties, that typically start off with low rates, but, in this market, continually adjust upward. Along with the higher interest rate, so goes your monthly mortgage payment.
When the loans come with interest-only payment terms, if you only pay the interest and your home value shrinks, your mortgage could become larger than your home's value giving you no room to bail out without coming up with the cash to cover the difference.
"With home price appreciation continuing to decelerate and billions of dollars in adjustable rate mortgages projected to reset in the next few months, this month's increase could be the beginning of an upward shift in the foreclosures market," said James J. Saccacio, chief executive officer of RealtyTrac.
In August, states with both greater statistically significant numbers of homes entering foreclosure and high rates of increases in those numbers, included Colorado, Nevada and Florida.
Colorado foreclosure activity spiked nearly 60 percent in August from the previous month and the state documented the nation's highest state foreclosure rate for the sixth month in a row, with one new foreclosure filing for every 301 households. The state reported 6,079 properties entering some stage of foreclosure during the month, more than twice the number reported in August 2005 and the seventh highest number reported by any state.
With one new foreclosure filing for every 430 households, Nevada posted the nation's second highest state foreclosure rate for the third straight month, due largely to bad bets on housing made in and around Las Vegas. The state reported 2,016 properties entering some stage of foreclosure, a 24 percent increase from the previous month and more than three times the number reported in August 2005.
Once crawling with speculators who are now abandoning the Sunshine State, Florida saw foreclosure activity jump to its highest level of the year so far, with 16,533 properties entering some stage of foreclosure in August -- the most of any state and an increase of more than 50 percent from the previous month. The state's foreclosure rate of one new foreclosure filing for every 442 households ranked as the nation's third highest state foreclosure rate.
Five states, Florida, Texas, California, Ohio and Illinois accounted for 50 percent of the nation's foreclosure activity in August.
What should you do if you face the possibility of a late mortgage payment for the first time and want to avoid foreclosure?
Swallow your pride.
A head-in-the-sand approach will leave what's likely your No. 1 asset exposed to foreclosure. Contact the lender and discuss what you can do. Your goal should be to stop any lender action that could damage your credit and ultimately cost you your home and prevent you from owning another one in the immediate future.
A Freddie Mac/Roper survey found that 75 percent of delinquent borrowers recall being contacted by their mortgage servicer -- the company (the lender or the lender's agent) that collects mortgage payments, but 68 percent of them never call back.
Given most lenders take months before moving to foreclose, you have ample time to seek some kind of work out.
Once you make contact with your lender or servicer in a return call or a call you initiated, stay in touch with that contact until you are current. Document your contacts in writing so you and the lender have a documented record of your efforts.
If possible, consider restructuring or refinancing your loan -- but not to borrow more money. If you are saddled with two mortgages, do the math to determine if consolidating them will help. Likewise consolidate non-mortgage debts. Also consider extending a 15 year mortgage to 30 years or a 30 year mortgage to 40 years or longer. Examine how any restructured debt will play out if your situation worsens or improves. In each case, determine if restructuring is your best move, preferably before you miss a payment and damage your chances of landing a new loan.
Watch out for scams. When you are down on your dollars you are most vulnerable to debt-removal come-ons. You likely didn't get in over your head over night. Don't expect a quick fix.
Get financial counseling. Certified (by state and federal agencies and recognized trade groups) consumer credit counseling services are often free or offered for only a nominal fee. They will teach you your rights and work with you and your creditors, say, to temporarily reduce payments or otherwise work out a payment plan that will keep you housed and your credit relatively intact.
Know your rights. If you are in the military, you have special relief under the Soldiers and Sailors Civil Relief Act to stop the foreclosure and you may be eligible for a reduction in the interest rate. Similar relief is available to those affected by hurricanes, earthquakes and other natural disasters.
Procedural errors in the lender's foreclosure effort or lender errors when you acquired the loan could permit you to file a lawsuit to enjoin or stop the procedure.
If all else fails, bankruptcy is an option that can stop foreclosure, at least temporarily, and give you some leverage to resolve the foreclosure. Today's bankruptcy law also forces you into counseling. That's a good thing.
Selling the property is another end-game option. Consider selling the property out right as quickly as possible or deeding it to the lender in exchange for ending the foreclosure and minimizing the negative comments on your credit report.
Published: September 15, 2006
The 115,292 homes nationwide entering some stage of foreclosure in August remains historically low, but the rate of increase in the number is becoming alarming. August foreclosures represented a 24 percent increase from July -- the second highest this year -- foreclosures are up 38 percent for the year so far and 53 percent compared to where they were this time last year.
Blame it on those nasty mortgage IEDs (Improvised Equity Devices) -- high leverage, high risk loans that are easy to come by, but financially explosive as time goes by.
Mortgage IEDs are typically ARMs, in a host of varieties, that typically start off with low rates, but, in this market, continually adjust upward. Along with the higher interest rate, so goes your monthly mortgage payment.
When the loans come with interest-only payment terms, if you only pay the interest and your home value shrinks, your mortgage could become larger than your home's value giving you no room to bail out without coming up with the cash to cover the difference.
"With home price appreciation continuing to decelerate and billions of dollars in adjustable rate mortgages projected to reset in the next few months, this month's increase could be the beginning of an upward shift in the foreclosures market," said James J. Saccacio, chief executive officer of RealtyTrac.
In August, states with both greater statistically significant numbers of homes entering foreclosure and high rates of increases in those numbers, included Colorado, Nevada and Florida.
Colorado foreclosure activity spiked nearly 60 percent in August from the previous month and the state documented the nation's highest state foreclosure rate for the sixth month in a row, with one new foreclosure filing for every 301 households. The state reported 6,079 properties entering some stage of foreclosure during the month, more than twice the number reported in August 2005 and the seventh highest number reported by any state.
With one new foreclosure filing for every 430 households, Nevada posted the nation's second highest state foreclosure rate for the third straight month, due largely to bad bets on housing made in and around Las Vegas. The state reported 2,016 properties entering some stage of foreclosure, a 24 percent increase from the previous month and more than three times the number reported in August 2005.
Once crawling with speculators who are now abandoning the Sunshine State, Florida saw foreclosure activity jump to its highest level of the year so far, with 16,533 properties entering some stage of foreclosure in August -- the most of any state and an increase of more than 50 percent from the previous month. The state's foreclosure rate of one new foreclosure filing for every 442 households ranked as the nation's third highest state foreclosure rate.
Five states, Florida, Texas, California, Ohio and Illinois accounted for 50 percent of the nation's foreclosure activity in August.
What should you do if you face the possibility of a late mortgage payment for the first time and want to avoid foreclosure?
Swallow your pride.
A head-in-the-sand approach will leave what's likely your No. 1 asset exposed to foreclosure. Contact the lender and discuss what you can do. Your goal should be to stop any lender action that could damage your credit and ultimately cost you your home and prevent you from owning another one in the immediate future.
A Freddie Mac/Roper survey found that 75 percent of delinquent borrowers recall being contacted by their mortgage servicer -- the company (the lender or the lender's agent) that collects mortgage payments, but 68 percent of them never call back.
Given most lenders take months before moving to foreclose, you have ample time to seek some kind of work out.
Once you make contact with your lender or servicer in a return call or a call you initiated, stay in touch with that contact until you are current. Document your contacts in writing so you and the lender have a documented record of your efforts.
If possible, consider restructuring or refinancing your loan -- but not to borrow more money. If you are saddled with two mortgages, do the math to determine if consolidating them will help. Likewise consolidate non-mortgage debts. Also consider extending a 15 year mortgage to 30 years or a 30 year mortgage to 40 years or longer. Examine how any restructured debt will play out if your situation worsens or improves. In each case, determine if restructuring is your best move, preferably before you miss a payment and damage your chances of landing a new loan.
Watch out for scams. When you are down on your dollars you are most vulnerable to debt-removal come-ons. You likely didn't get in over your head over night. Don't expect a quick fix.
Get financial counseling. Certified (by state and federal agencies and recognized trade groups) consumer credit counseling services are often free or offered for only a nominal fee. They will teach you your rights and work with you and your creditors, say, to temporarily reduce payments or otherwise work out a payment plan that will keep you housed and your credit relatively intact.
Know your rights. If you are in the military, you have special relief under the Soldiers and Sailors Civil Relief Act to stop the foreclosure and you may be eligible for a reduction in the interest rate. Similar relief is available to those affected by hurricanes, earthquakes and other natural disasters.
Procedural errors in the lender's foreclosure effort or lender errors when you acquired the loan could permit you to file a lawsuit to enjoin or stop the procedure.
If all else fails, bankruptcy is an option that can stop foreclosure, at least temporarily, and give you some leverage to resolve the foreclosure. Today's bankruptcy law also forces you into counseling. That's a good thing.
Selling the property is another end-game option. Consider selling the property out right as quickly as possible or deeding it to the lender in exchange for ending the foreclosure and minimizing the negative comments on your credit report.
Published: September 15, 2006
Thursday, September 07, 2006
Realtors expect home prices to fall
WASHINGTON (MarketWatch) - U.S. home prices will probably fall temporarily as the housing market corrects, the National Association of Realtors said Thursday.
Prices should bounce higher in a few months, said David Lereah, chief economist for the real estate group "as the market works through a build in housing inventory."
Median existing-home sales prices should rise about 2.8% this year and 2.2% next year, the realtors said in their monthly economic outlook. Median new-home prices are expected to rise 0.2% in 2006 and 2.4% in 2007.
Existing-home prices have risen at an average of 9.6% annually in the past four years. New-home prices rose 13.3% in 2004 and 9% in 2005.
"This year sales are slowing, homes are plentiful and sellers are negotiating," Lereah said. "Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory."
Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but "people who purchased last year with the intent of flipping are likely to get burned," he said.
Consumer prices excluding shelter costs have risen 4.4% in the past year.
The group is forecasting existing home sales to fall 7.6% in 2006 and a further 1.7% next year. New homes sales are expected to fall 16.1% in 2006 and 7.1% in 2007. Housing starts are projected to fall 9.6% this year and 9.8% next.
The forecasts are slightly below the group's projections from a month ago.
Compared with the group's forecasts at the beginning of the year, the expected declines in existing-home sales and housing starts for 2006 are about twice what was expected, and the expected drop in new-home sales for 2006 is about three times as severe. Rex Nutting is Washington bureau chief of MarketWatch.
Prices should bounce higher in a few months, said David Lereah, chief economist for the real estate group "as the market works through a build in housing inventory."
Median existing-home sales prices should rise about 2.8% this year and 2.2% next year, the realtors said in their monthly economic outlook. Median new-home prices are expected to rise 0.2% in 2006 and 2.4% in 2007.
Existing-home prices have risen at an average of 9.6% annually in the past four years. New-home prices rose 13.3% in 2004 and 9% in 2005.
"This year sales are slowing, homes are plentiful and sellers are negotiating," Lereah said. "Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory."
Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but "people who purchased last year with the intent of flipping are likely to get burned," he said.
Consumer prices excluding shelter costs have risen 4.4% in the past year.
The group is forecasting existing home sales to fall 7.6% in 2006 and a further 1.7% next year. New homes sales are expected to fall 16.1% in 2006 and 7.1% in 2007. Housing starts are projected to fall 9.6% this year and 9.8% next.
The forecasts are slightly below the group's projections from a month ago.
Compared with the group's forecasts at the beginning of the year, the expected declines in existing-home sales and housing starts for 2006 are about twice what was expected, and the expected drop in new-home sales for 2006 is about three times as severe. Rex Nutting is Washington bureau chief of MarketWatch.
Realtors expect home prices to fall
WASHINGTON (MarketWatch) - U.S. home prices will probably fall temporarily as the housing market corrects, the National Association of Realtors said Thursday.
Prices should bounce higher in a few months, said David Lereah, chief economist for the real estate group "as the market works through a build in housing inventory."
Median existing-home sales prices should rise about 2.8% this year and 2.2% next year, the realtors said in their monthly economic outlook. Median new-home prices are expected to rise 0.2% in 2006 and 2.4% in 2007.
Existing-home prices have risen at an average of 9.6% annually in the past four years. New-home prices rose 13.3% in 2004 and 9% in 2005.
"This year sales are slowing, homes are plentiful and sellers are negotiating," Lereah said. "Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory."
Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but "people who purchased last year with the intent of flipping are likely to get burned," he said.
Consumer prices excluding shelter costs have risen 4.4% in the past year.
The group is forecasting existing home sales to fall 7.6% in 2006 and a further 1.7% next year. New homes sales are expected to fall 16.1% in 2006 and 7.1% in 2007. Housing starts are projected to fall 9.6% this year and 9.8% next.
The forecasts are slightly below the group's projections from a month ago.
Compared with the group's forecasts at the beginning of the year, the expected declines in existing-home sales and housing starts for 2006 are about twice what was expected, and the expected drop in new-home sales for 2006 is about three times as severe. 
Rex Nutting is Washington bureau chief of MarketWatch.
Friday, August 18, 2006
Mortgage Rates Continue String of Declines
Freddie Mac reports a drop in the 30-year fixed mortgage rate to 6.52 percent during the week ended Aug. 17, marking the fourth-straight decline.
Rates are still 72 basis points higher than a year ago. A basis point is 0.01 of a percent.
Five-year hybrid adjustable-rate mortgages, which carry fixed rates for the first 5 years and then float, fell 3 basis points to 6.18 percent. One-year ARMs declined 4 basis points to 5.65 percent.
The 10-year Treasury yield, the benchmark for mortgage rates, has fallen as well due to data that shows moderate inflation and weakness in the economy.
Source: Investor's Business Daily (08/18/06)
Rates are still 72 basis points higher than a year ago. A basis point is 0.01 of a percent.
Five-year hybrid adjustable-rate mortgages, which carry fixed rates for the first 5 years and then float, fell 3 basis points to 6.18 percent. One-year ARMs declined 4 basis points to 5.65 percent.
The 10-year Treasury yield, the benchmark for mortgage rates, has fallen as well due to data that shows moderate inflation and weakness in the economy.
Source: Investor's Business Daily (08/18/06)
Friday, July 28, 2006
Prediction: The Fed is done raising rates
The Fed is done raising rates.
Interest rates appear to have peaked. The 10-yr Treasury closed below the 5% barrier today (July 28th). The Fed funds futures contract is now predicting a pause at the August 8 FOMC meeting.
Interest rates appear to have peaked. The 10-yr Treasury closed below the 5% barrier today (July 28th). The Fed funds futures contract is now predicting a pause at the August 8 FOMC meeting.
Monday, July 17, 2006
Federal Real Estate and Mortgage Tax Incentives
What's the mortgage interest deduction worth to the typical homeowner who claims it at tax time? Nearly $10,000 on average, according to a provocative new analysis of federal incentives for homeowners nationwide.
But there are many parts of the country where the "typical" tax deduction for mortgage interest is far bigger, and plenty of others where it is considerably smaller. Take, for example, California's 14th congressional district in and around high-cost Silicon Valley. The average taxpayer there took a whopping $35,000 in mortgage interest deductions during the year covered by the research -- more than six times the average mortgage interest writeoff taken during the same period by residents of Oklahoma ($5,710).
The homeowners of the 14th district took an aggregate $3.2 billion worth of mortgage interest deductions and that total was about the same as all the mortgage interest writeoffs claimed by all the homeowners in seven states -- Alaska, Montana, North and South Dakota, Vermont, West Virginia and Wyoming -- combined.
The new research study by the National Association of Home Builders used the latest available IRS tax data -- tax year 2003 -- and broke deductions down by the state and congressional districts of the taxpayers. The report was prepared in part to demonstrate the size and economic importance of the mortgage interest and real property tax writeoffs to individual congressional representatives.
To illustrate: Confronted with the $3.2 billion writeoffs taken by 14th district constituents in a single year, any savvy congressman would be loath to cut back on the deduction, even to reduce the federal deficit.
In tax year 2006, according to estimates by Congress's joint committee on taxation, homeowners will claim a total of $81 billion in mortgage interest deductions. By 2009, the writeoffs are expected to hit $100 billion a year. The deduction is available on all qualifying principal residences where the mortgage amount does not exceed $1 million and home equity debt does not exceed $100,000. As a practical matter, homeowners can write off interest annually on home mortgage debt totaling $1.1 million.
They can also write off local real property taxes paid on a principal residence during the tax year without limit. In 2006, according to congressional estimates, $15 billion in "local real" will be deducted by homeowners.
The highest property tax deductions, not surprisingly, go to homeowners in high tax areas, especially in the northeastern states. For example, the residents of New York's 3rd congressional district on Long Island, took an average $11,884 in property tax writeoffs during 2003, a total of $1.25 billion for the district. That aggregate writeoff was more than all the property tax deductions taken in 2003 by homeowners in eight states combined -- Wyoming, West Virginia, Hawaii, the District of Columbia, Delaware, South and North Dakota and Arkansas. (For federal tax purposes, the study treated D.C. as the equivalent of a state.)
The NAHB research found that the highest states for property tax writeoffs were New Jersey (an average $6,005 per homeowner), New York ($5,187), New Hampshire ($4,830), Illinois ($4,129) and Vermont ($3,845). The highest states for mortgage interest writeoffs on average were California (($14,217), Hawaii ($12,766), the District of Columbia ($11,759), Nevada ($11,522) and Washington ($11,223).
The lowest states for mortgage interest deductions were Oklahoma ($5,710), Iowa ($6,754), North Carolina ($6,808) and Maine ($6,888).
Jerry Howard, executive vice president and CEO of NAHB, said "The report shows that millions of working families around the nation use and depend upon these important tax incentives to help them maintain their current standard of living. Because the mortgage interest and real estate deductions significantly reduce federal tax liabilities for homeowners, they are important tools for promoting homeownership."
The not-so-subtle message to Congress from NAHB: Don't mess with these writeoffs. They're too important to the people who elected you … and can throw you out of office if you cut their deductions.
by Kenneth R. Harney / Realty Times
But there are many parts of the country where the "typical" tax deduction for mortgage interest is far bigger, and plenty of others where it is considerably smaller. Take, for example, California's 14th congressional district in and around high-cost Silicon Valley. The average taxpayer there took a whopping $35,000 in mortgage interest deductions during the year covered by the research -- more than six times the average mortgage interest writeoff taken during the same period by residents of Oklahoma ($5,710).
The homeowners of the 14th district took an aggregate $3.2 billion worth of mortgage interest deductions and that total was about the same as all the mortgage interest writeoffs claimed by all the homeowners in seven states -- Alaska, Montana, North and South Dakota, Vermont, West Virginia and Wyoming -- combined.
The new research study by the National Association of Home Builders used the latest available IRS tax data -- tax year 2003 -- and broke deductions down by the state and congressional districts of the taxpayers. The report was prepared in part to demonstrate the size and economic importance of the mortgage interest and real property tax writeoffs to individual congressional representatives.
To illustrate: Confronted with the $3.2 billion writeoffs taken by 14th district constituents in a single year, any savvy congressman would be loath to cut back on the deduction, even to reduce the federal deficit.
In tax year 2006, according to estimates by Congress's joint committee on taxation, homeowners will claim a total of $81 billion in mortgage interest deductions. By 2009, the writeoffs are expected to hit $100 billion a year. The deduction is available on all qualifying principal residences where the mortgage amount does not exceed $1 million and home equity debt does not exceed $100,000. As a practical matter, homeowners can write off interest annually on home mortgage debt totaling $1.1 million.
They can also write off local real property taxes paid on a principal residence during the tax year without limit. In 2006, according to congressional estimates, $15 billion in "local real" will be deducted by homeowners.
The highest property tax deductions, not surprisingly, go to homeowners in high tax areas, especially in the northeastern states. For example, the residents of New York's 3rd congressional district on Long Island, took an average $11,884 in property tax writeoffs during 2003, a total of $1.25 billion for the district. That aggregate writeoff was more than all the property tax deductions taken in 2003 by homeowners in eight states combined -- Wyoming, West Virginia, Hawaii, the District of Columbia, Delaware, South and North Dakota and Arkansas. (For federal tax purposes, the study treated D.C. as the equivalent of a state.)
The NAHB research found that the highest states for property tax writeoffs were New Jersey (an average $6,005 per homeowner), New York ($5,187), New Hampshire ($4,830), Illinois ($4,129) and Vermont ($3,845). The highest states for mortgage interest writeoffs on average were California (($14,217), Hawaii ($12,766), the District of Columbia ($11,759), Nevada ($11,522) and Washington ($11,223).
The lowest states for mortgage interest deductions were Oklahoma ($5,710), Iowa ($6,754), North Carolina ($6,808) and Maine ($6,888).
Jerry Howard, executive vice president and CEO of NAHB, said "The report shows that millions of working families around the nation use and depend upon these important tax incentives to help them maintain their current standard of living. Because the mortgage interest and real estate deductions significantly reduce federal tax liabilities for homeowners, they are important tools for promoting homeownership."
The not-so-subtle message to Congress from NAHB: Don't mess with these writeoffs. They're too important to the people who elected you … and can throw you out of office if you cut their deductions.
by Kenneth R. Harney / Realty Times
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