Homes are most people’s largest investment so it’s not surprising NYT’s most read story the past 2 days is Housing Fades As A Means To Build Wealth. It cites 5 housing experts who all have similar bearish outlooks on housing. There will always be chatter about the demise of a certain asset class, so remember these two points: (1) Understand your own time horizon and objectives, and do your math accordingly before making investments, and (2) property is the least efficient asset class, so security selection is everything—in non-investor terms, this means that property prices are extremely localized, so there will always be higher-than-average returns on property investments for those who do their research.
As for the NYT piece, the only practicing investment professional among the sources cited was Barry Rithotlz, head of investment research firm Fusion IQ, who later expanded on his blog to say that it is safe to buy 2 kinds of properties right now—see below. more…
Every Thursday, Freddie Mac releases its Primary Mortgage Market Survey (PMMS). This is the official record on mortgage rates and source material for the overwhelming majority of rate reports in the media—reports that very often exclude critical details rate shoppers need to know. Since the one-day market crash May 6, mortgage bonds have rallied to insane levels and mortgage rates have dropped to new record lows several times. So news stories about record low rates hit at the end of each week, but they are for rates that were available the previous week. And only if you have a single family home, and a loan of $417,000 or less, and lots more fine print. Below is a checklist of characteristics used in the Freddie Mac PMMS survey, so you know if these rates apply to you or not.
PMMS rates reported in the press each Thursday are for the week leading up to (and not including) Thursday. Mortgage rates are tied to mortgage bond trading, and as such, rates change all day everyday. The Thursday PMMS report on rates is for rates that are long expired, so it’s critical to get market-relevant quotes from a mortgage lender, not a news source. Also below are some other useful links for understanding rate quotes and rate locks. more…
The most-asked questions by home mortgage borrowers so far in 2010 are about where rates will go, how to lock rates in a volatile trading environment, and how home appraisals affect the lending process. Each question is addressed below.
Where Will Rates Go By Summer?
Rates on loans up to $417,000 are about 5% as of mid-February, and rates could rise as much as .5% by summer for three macro reasons: (1) The Fed will end it’s $1.25t mortgage bond buying program March 31, and then we’ll likely see profit taking on mortgage bonds as private investors sell, which pushes prices down and yields—or rates—up; (2) An improving economy and resulting inflationary fear will cause mortgage bonds to sell off because inflation eats up bond returns, so this would also push bond prices down and rates up; and (3) Inflation will cause the Fed to start hiking short rates from current near-zero levels. Global investors currently borrow on these short-term rates to buy long-term securities with higher returns. When short rates rise, it will erode the benefit of this interest rate trade and force selling of long-term securities—including mortgage bonds—to repay short-term loans. That selling will also push rates higher.
How Do You Decide When To Lock A Mortgage Rate?
We can expect continued rate volatility as markets struggle to interpret the impact daily economic indicators have on the aforementioned macro rate factors. For now, rates are holding close to record lows, but intraday rate swings can be .25% to .5% as mortgage bonds trade on different interpretations of daily economic data. So how do you decide when to lock a rate? You need to set a rate target with your mortgage advisor based on current trading ranges and estimated results of upcoming economic data, and you need to be ready decide on a rate lock based on those rate expectations. If it looks like rates will trade above that target, it’s time to lock your rate—this includes locking ahead of economic releases that might have surprise results: better to lock at your target than having rates trade the wrong way on surprise data. It’s a very simple strategy, and making the lock decision process more complicated than this adds unnecessary stress. more…
This San Francisco Chronicle story on home purchase incentives offered by Bay Area cities has been sent to me a few times today. This is a good piece reviewing options and highlighting some success stories.
But people should note that these city programs pose a some challenges. To use San Francisco programs as an example, the biggest challenge is the formula they use to calculate income for down payment assistance, teacher and other programs often results in disqualified borrowers. more…
In a market report last quarter, we buried a quotation that’s worth revisiting. It was from investment luminary Dean Witter in May 1933, about 3.5 years after the Great Depression began. He said:
“Some people say they want to wait for a clearer view of the future. But when the future is clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?”
These words have particular relevance for homebuyers and owners today, about 3.25 years after home prices began crashing and eventually led to what many economists have called the Great Recession. more…
Rate/Market Update
Rates on conforming loans up to $417k and super-conforming loans up to $729k continue to trade up and down as much as .5% per week, and this week we’re better by 0.25%. Unlike loans up to $729k, jumbos aren’t currently securitized, so while jumbo lenders look to mortgage bond markets for pricing cues, jumbo rates are priced more according to lender competition than mortgage bond trading levels.
Mortgage bonds showed a net gain (leading to the .25% rate improvement) this week because of tame consumer inflation data, weaker than expected retail sales, and better than expected Treasury auctions that helped the bond complex improve overall. As Treasury issues more bonds to raise money for stimulus, oversupply continues to be a threat to lower rates, but the Fed’s mortgage bond buying program should help hold rates low as we round out the summer. more…
There’s been a lot of chatter about whether the $8000 homebuyer tax credit can be used toward down payments. Most recently, HUD said the tax credit can go for down payments and here’s a press report on it:
First-time homebuyers will now have access to quick cash to help them with their down payments. more…
Good Economy Equals Bad Rates
You just can’t make this stuff up! Eugenio J. Aleman, senior economist at Wells Fargo stated that “The Biggest Risk Today is an Economic Recovery”. Once again, anyone in the mortgage business wonders which evil they’d rather have: a stalled economy and low rates, or a strong economy with higher rates. Either way, I am sure that a renewal of programs that promoted lending to self-employed borrowers would help, regardless. Wells’ economist said, “The job of the Federal Reserve is going to become more difficult if this ‘recovery’ is for real, because it will have to start ‘mopping away’ all the excess liquidity in the market. Furthermore, because the fiscal expenditure package is back-loaded, that is, it is going to take effect starting in 2010, then that ‘mopping away’ may have to be larger than what otherwise it would have been.”
Buy vs. Rent Analysis
Should a broker always advice a potential client to buy rather than rent? Perhaps not, especially if they want a long-term client. Generally speaking, fixed payments over a long period of time don’t maintain their purchasing power: their “real rate of return” is calculated by subtracting the rate of inflation from the yield. But houses and stocks have prices and earnings that tend to maintain their purchasing power over long periods. Any client wondering about buying versus renting should be made aware that renting tends to make the most sense in weak real estate markets. And what have most areas of the US had for the last year or two? Last year housing prices fell about 20% nationwide, and many experts expect it to fall farther in 2009. more…
One common story during the past year of home price declines is how homeowners can go to their local tax assessors office and ask for their property to be re-assessed. In many counties across the country, it’s not as big of a deal because the assessors offices reassess properties quarterly or annually anyway based on current values. Because of Proposition 13 in California, property taxes are reassessed annually—but only to make small adjustments to assessed value and tax rates to keep up with inflation. It is Proposition 8 that allows assessed values to be reduced when market prices drop—so when prices drop, many homeowners contact their local offices.
The deadline to file an ‘informal request’ for a new assessed value is Friday (August 15) and ‘formal requests’ are due September 15. So far the assessors office has processed 285 of 1000 ‘informal’ requests. The reason for the deadlines is so the county can have time to generate 2008-2009 tax bills for mailing in October. As the ‘informal’ and ‘formal’ names might suggest, this is a bureaucratic process, so be prepared to fight it every step of the way. The San Francisco Chronicle covered the property tax assessment appeal story today, and below are some important excerpts: more…
“I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut.”
— Kansas City Fed President Thomas Hoenig in an August 13 speech justifying why he's been the only FOMC member to vote against low rates thro
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