Is the 30-Year Fixed Mortgage Actually a Lot of Work?

I typically refer to the 30-year fixed mortgage as a set-it-and-forget-it type of mortgage because it’s fixed for the entire duration of the loan.

The mortgage rate in month one is the same as the rate in month 360. The mortgage payment never changes, though the total housing payment could vary thanks to things like taxes, insurance, and PMI.

Put simply, it’s a very easy mortgage to wrap your head around, and for that reason the most popular and common choice for homeowners here in the United States.

The same isn’t true elsewhere in the world, which is one of the reasons why the 30-year fixed has been questioned a lot lately by economists and mortgage pundits.


The latest opinion comes from Benjamin Keys of The Wharton School of the University of Pennsylvania, who analyzed how monetary policy makes its way into households via the mortgages borrowers hold.

During the most recent crisis, those with adjustable-rate mortgages actually “won” in a sense because their rates adjusted lower when the government stepped in and bought tons of mortgage-backed securities while lowering other borrowing rates.

Meanwhile, those with fixed rates didn’t benefit at all, and in fact were trapped in their mortgages because of equity issues, namely underwater mortgages.

This meant those who ostensibly took on more risk were rewarded when the wheels fell off. And those who were seemingly prudent in their mortgage choice were punished because they were unable to refinance until HARP came along.

Does that mean we should all go with ARMs instead of fixed-rate loans and hope the government takes care of the rest?

Is an ARM the Hands-Off Mortgage Solution?

Keys noted that there is an “automatic transmission of monetary policy through adjustable-rate mortgage contracts.”

In other words, the ARM adjusts with the greater economy and the borrower doesn’t have to go out and refinance or lift a finger.

Their lender will just adjust their payment as the index changes, whether it’s up or down. Of course, lately it’s been a one-sided argument, with ARMs generally falling at the reset, instead of climbing.

This has actually led to debt reduction and new spending, with borrowers who selected ARMs choosing to pay down higher-APR like credit cards while also purchasing new cars.

Effectively, the economy was stimulated via these ARMs because it freed up cash for households to inject back into the economy through other channels.

Mortgage defaults in this group also dropped by some 36% thanks to the reduced monthly payment.

To summarize, borrowers with ARMs didn’t need to do anything to obtain lower payments, despite the fact that most probably assumed they’d have to refinance out of the ARM once it adjusted (higher).

At the same time, their neighbors with fixed-rate mortgages set at 6% were probably shaking their heads, wondering how they wound up paying more.

Additionally, they had to keep a close eye on interest rates to ensure they weren’t paying too much, and then make the decision to refinance or not. That meant a lot of work (and worrying), ironically.

Interestingly, Wharton researchers found that regions of the country that had more ARMs recovered faster during the Great Recession, saw more auto sales, and increased local employment.

Could the Opposite Happen?

The problem is ARMs can move both up and down, and everyone (including Wharton) expects rates to go up the next time around.

The big question is how things will play out when that happens. Will the borrowers who elected to take out ARMs get burnt and require a bailout?

Will home prices go down more in the areas where ARMs were more popular?

If so, might the 30-year fixed prove to be the winner it was expected to be prior to the most recent housing crisis? And as such, should it be left alone?

All to be determined…but there’s a good takeaway here. Monetary policy can dictate whether ARMs adjust higher or lower, so in that sense the Fed has the ability to provide direct stimulus to homeowners, without tax rebates or mass refinancing programs. That’s a pretty powerful thing.

But if homeowners keep opting for the 30-year fixed, it’ll be difficult for the Fed to do a whole lot, and these homeowners might just find that their mortgages are a lot more work than they expected.

source: thetruthaboutmortgage.com

The Equity Boom Might Be Making You Money

Have you ever checked out your bank account online only to discover you’re $50,000 richer than you were yesterday? That may sound like the sort of thing that happens only in fairy tales and lottery advertisements, but it’s happening right now to millions of homeowners across the nation.

How does it happen?


Homeowner equity is the largest source of wealth for many Americans, and as I speak, an equity boom is underway, raising homes values over the past three years as prices recover from the housing crash.The evidence suggests we’re still in the beginning phases of a boom that is unmatched in modern times. We may not even reach the halfway point for two years or so.

Following the housing crash in 2007, homeowners lost trillions worth of equity in their homes as prices, and then values, plummeted. Falling values pushed millions of homeowners “underwater” or into “negative equity” as their homes became worth less than the amount they owned on their mortgages.  When many homes became virtually worthless, owners defaulted on their loans—sometimes voluntarily. By the end of the Foreclosure Era, more than 5 million homes were lost—about the same number as all the existing homes typically sold in a year.

Is your home still underwater? Many still are. Luckily, the government has programs in place that can help. Learn more about HARP here.

Tracking home value increases


When the recovery began in 2012, the national median home price was at a multi-year low of $154,600 in January of that year. In November 2016, it had reached $220,300 and was still climbing.[1] That’s an increase of 42.2 percent. Sales price trends influence home values over time, so it’s a fair assumption that values are generally following suit and may be increasing much more than 42 percent in hotter Western markets.

Over the past three years, Homes.com has tracked price recovery on a market-by-market basis. By September 2015, 170 of the nation’s largest 300 markets, or 57 percent, had returned to the peak prices they achieved before the housing crash, including 53 of the top 100 markets.^[2]

The real estate data and analytics firm CoreLogic estimates that the number of mortgaged residential properties with equity at the end of the third quarter of 2015 reached approximately 46.3 million, or 92.0 percent of all homes with an outstanding mortgage, a decrease of negative-equity homes by 11.8 percent in 12 months. In Q3 2015 there were 37.5 million borrowers with at least 20 percent equity, up 7 percent from 35 million in Q3 2014.[3] Homeowners with 20 percent or more equity will find in easier to sell their homes, refinance or take out loans where their equity provides the collateral.

Price increases are expected to moderate in 2016, causing CoreLogic to move back is forecast for the date when the national median sales price will reach the peak level attained before the housing crash. Initially the firm predicted the peak would be reached in mid-2016; now it is forecasted for mid-2017.[4] The rate of increase in the CoreLogic Home Price Index is expected to slow to 4 to 5 percent during 2016 from about 6 percent in 2015.[5]

These medians, whether market-by-market in the Homes.com reports or CoreLogic’s national medians, represent only a midpoint among homeowners. Even in a market where the median price has reached the peak price half or more than half of homeowners could still below the peak. It will take several more years of price growth for the Equity Boom to fully reach a significant majority of homeowners.

What does this mean for you?


CoreLogic’s data only covers homeowners with a mortgage. If you are one of the 34.4 percent of homeowners who own their homes free and clear[6], the Equity Boom is putting money in your pocket just as quickly as your neighbor with a mortgage—and you don’t have to pay any of it back to a lender when you sell!

The Equity Boom is not occurring at the same pace by geography or by price tier. In general, the bulk of positive equity for mortgaged residential properties is concentrated at the high end of the housing market. For example, 95 percent of homes valued at $200,000 or more have positive equity compared with 87 percent of homes valued at less than $200,000.[7]

In general, those markets that are trailing in the race to regain peak prices lost the most value during the foreclosure crisis and therefore have the longest roads to travel to regain their peak prices. Those where demand is strong and prices are rising fastest are making the most progress to meet and exceed their peak price levels.

source: totalmortgage.com

How Accurate Are Local Home Sale Prices?

As you search for a home online, one of the more important statistics you’ll encounter are prices for homes that have sold recently in the area you want to live in. This is the best way to get a feel for the local market. In fact, identifying recent sales prices of “comparable” homes is basically how appraisers determine values.

How Sales Prices Work

Sales prices, sometime called closed sale prices, differ significantly from list prices, which basically represent only what the seller is asking for the house. Nor are they pending sales process or contract prices, which are the amounts sellers and buyers initially agree to but often change before closing.

Sales prices for individual homes that you see on real estate web sites come from brokers who report prices to their local multiple listing services rather than waiting for prices to be posted publicly at courthouses, a process than can take months.

But How Accurate Are They?

A new study has found that the prices consumers see on web sites were wrong an average of 8.75 percent of the time—in most cases higher than they should have been. The economists who conducted the study looked at 400 transactions in a Southeastern state from 2004 to 2008.

They compared prices from MLSs with the official prices and found that errors weren’t spread evenly over the time period but doubled in one year to more than 15 percent of transactions in 2006, when prices peaked and began to fall in the housing crash, followed by nearly as many errors in 2007 and 2008, when the crash accelerated. One example was 22 percent higher than the actual sales price.

How Do Errors Happen?

The timing of the errors suggested they were not random mistakes but were driven by marketplace conditions.

From the evidence, the authors of the study suggested two viable explanations for the market-driven error rates. The first was that some brokers intentionally inflated sold price information in the MLS, perhaps to make it appear that they negotiated a higher price for their clients.

“I don’t think agents were deliberately misstating prices, though that’s a story that fits the facts,” said Dr. Kenneth M. Lusht, one of the study’s three authors, in an interview. Lusht is Distinguished Professor of Real Estate at Florida Gulf Coast University.

“The second thing that could have happened, and it’s pretty likely, is that when you’ve got a down market, buyers get cold feet. They start thinking about not going through with the sale and giving up their deposit. So another story that’s consistent with what we found is that the price the broker submitted was the agreed upon price but between that the time he submitted it to the MLS and the settlement day the price was changed and the broker never changed the data because there is no incentive to do so.”

Whatever the cause of the errors, the study concluded, “Regardless of the motivation or source of the error, the result is the same—a misstated price.”

 The Bottom Line

More research is needed to confirm whether a real problem might exist and to measure its scope. Moreover, few markets today are falling at rates close to those of the period covered by the study, so at most errors are less frequent and less severe than those in the study.

However, in the meantime consumers relying upon sales data originating from multiple listings services should see if they can find other sources for sales that they are relying upon to set a sales price, price an offer or negotiate and final price.

source: totalmortgage.com

How to Tell if Your Local Real Estate Market Is Healthy

At its simplest level, real estate economics is a matter of supply and demand. Too few houses for sale to meet demand and prices rise. Conversely, if the local for sale inventory exceeds demand, prices will fall.

If supply and demand are in balance, though, prices will stabilize and homes will sell at prices closer to their true values without the unhealthy side effects of an unbalanced market—bidding wars and prices so high that they shut out first-time buyers or so low that they suck away equity from homeowners.

During the current recovery, rapidly rising prices have created bubble-like conditions, threatening some Western markets and raising the specter of the crash that contributed to the default of more than 5 million families.

Markets can change quickly, but it is not hard to tell when supply and demand are so out of balance that they create abnormal changes in the market that make it difficult for buyer or sellers.

Here some ways to assess a market’s health.

Rapidly rising or falling prices.

These are the symptoms that the market is out of balance and is causing damage to either sellers, buyers, or move-up buyers. Generally, an annual increase of 5 percent is a very healthy rate of appreciation.

Prices above that level and prices that are depreciating on annual basis suggest that they market is out of balance. Over the past three years, national average price has risen about 20 percent, according to CoreLogic.

Months’ supply.

Housing economists track the balance between supply and demand with metric known as “months’ supply.” It presents how many months it would take to use up the current supply of homes at the current rate of demand.  It takes into account current inventory, rate of replacement and the rate of disappearance. A six-month supply is considered healthy.

Time on market or days on market. 

This metric is simply the median time that homes are selling in a market. For a specific listing, it’s the number of days a listing is active in a multiple listing service before a buyer makes an offer that the seller accepts.

It is less accurate than months’ supply because MLSs reset the clock tracking time on market if the property is delisted and then listed again, often by another broker. “Time on site” a similar measure, also can be confusing since it measures only the days a listing has been on an aggregator site like Zillow or Realtor.com. It might have been listed on its MLS for s longer period of time than on an aggregator site.

When days on market exceed 90 days, it’s a good sign that either there is something wrong with the property or it is priced too high for the market.

List-to-sale, sale-to-list, or list-to-close ratio.

This is a sales metric used by real estate professionals to measure whether homes are selling more or less than the asking price in the local market. To calculate the metric, divide the actual sale price by the property’s final list price and express the result as a percentage. It can also be calculated using recent sales prices in a market.

Buyers, sellers and real estate agents can use the ratio to determine a strategy for price negotiation. A ratio above 100 percent means that it is a strong sellers’ market and homes are selling for more than their list price, suggesting mufti bid situations. If a home’s ratio is below 100 percent, the property may have had serious repair issues or was overpriced initially. When the ratio is below 100 percent on a market-wide basis, it suggests demand is soft and still softening, forcing owners to lower their prices after they listed their homes.

The bottom line? There are plenty of ways to get a feel for the housing market in your area as long as you’re willing to do a little research.

source: totalmortgage.com

Housing Market Predictions for 2016

In 2015, the housing market saw prices continue their climb from where they were a few years back. There’s no telling what exactly 2016 has in store for us, but there’s no denying it’s gotten off on the wrong foot.

Depending on who you talk to, the current problems are either a temporary setback or indicative of things to come. Covering both ends of the spectrum, here are a few things that may–or may not–unfold in the 2016 housing market:

Rising housing prices
Svenja Gullen, Chief Economist at Zillow, and self-proclaimed optimist believes that housing prices are set to rise 3.5 percent in 2016. That’s slightly down from 2015’s nationwide average of about 4 percent. Of course, local markets can vary drastically with their performances, and there will no doubt be cities that will outperform the national average. Denver, Dallas, Miami, Seattle, and Pittsburgh all seem poised to do just that. Zillow has the following as their top 10 housing markets for 2016:

    Denver
    Seattle
    Dallas-Fort Worth, Texas
    Richmond, Va.
    Boise, Idaho
    Ogden, Utah
    Salt Lake City
    Omaha, Neb.
    Sacramento, Calif.
    Portland, Ore.

Rent will go up

Rent.com released their 2015 Rental Market Report, and it doesn’t paint a pretty picture for renters. According to the report, vacancy rates are the lowest they’ve been in almost twenty years. That means demand is high, resulting in little wiggle room when negotiating the price of rent. It doesn’t help when property managers are eager to get after the benjamins, with 88% saying they raised their rent in the past 12 months.

The report also showed that 68% of property managers believe that rising rent will continue in 2016, with an average of 8%. Keeping up with constantly rising rent can be a battle when your income isn’t increasing at a similar rate, which is exactly what’s been happening.

Eager home buyers will continue to struggle

The NAR’s Housing Opportunities and Market Experience (HOME) survey shed some light on the desires of prospective home buyers in 2016. It showed that 94 percent of current renters who are 34 years of age or younger want to own a home in the future. Out of all renters, 83 percent said they have a desire to own, and 77 percent think that homeownership is part of their American Dream.

The inability to afford to buy was the top reason for not currently owning (53 percent), followed by the flexibility of renting as the second most popular reason (19 percent). Lifestyle decisions such as getting married, starting a family or retiring were cited as top reasons for shifting to owning at 33 percent, and improvement in their financial situation came in second at 26 percent.

The clear takeaway from all of this data is that people want to own homes, it’s just difficult to make the dream a reality–especially for young buyers. With wages barely rising and rent soaring, it can be incredibly difficult to put money away for a down payment. It’s particularly burdensome for borrowers who are already struggling with high student loan debt.

The economy will falter

Of course, there are some outliers that do not think the U.S. economy is as strong as the pundits and politicians lead everyone to believe. While most people are blaming foreign affairs for our recent domestic stock market troubles, a few are saying that the cause is actually the Fed’s decision to raise interest rates last month.

They claim that because the Fed’s free money is no longer propping up the markets, the economy is slowly sinking down to its true form. In this scenario, the Federal Reserve is forced to backtrack on its commitment to raise rates, and will ultimately have to cut rates. Home prices could take a hit if the situation got bad enough. This would be terrible news for homeowners. Will it happen? Unfortunately, we’re forced to wait to find out.

source: totalmortgage.com

Buying Your First Home in 2016? Start Now.

There are some very good reasons to buy a home in 2016. Mortgage interest rates are on the rise and leading economists predict that the longer you wait, the higher they will go, toping 4 percent by the fourth quarter. Home prices are also expected to continue their upward climb in the year to come, but at a slower pace than in 2015.

The State of the Real Estate Market

First-time homebuyers found the pickings to be slim for affordable starter homes in 2015, especially in hotter markers like Denver, Portland, Dallas, Seattle and much of California. Slim pickings in their price range kept thousands of potential buyers in rentals for another year. Will 2016 be any different?

New home construction is expected to improve considerably over last year as builders respond to rising prices. The will put the new-home market on track to reach 91 percent of its average norm by 2017, according to the National Association of Home Builders.[1] News homes are generally priced higher than first-timers can afford, but the new construction will still make a positive contribution to the inventory shortage.

More import is the outlook for existing homes. Supply of entry-level homes has been constricted by the unwillingness of current owners to sell and move up the housing ladder to a more expensive home, but that may change in 2016.

“Sales activity in 2016 will once again be primarily driven by the ongoing release of more pent-up sellers finally realizing their equity gains and using it towards the down payment on their next home,” says Lawrence Yun, chief economist for the National Association of Realtors. Yun predicts home sales will finish 2015 at a pace of 5.30 million and grow three percent next year to around 5.45 million.[2]

However, 2015 is ending with a question mark about the inventory outlook. Both NAR and Redfin reported that in October total homes for sale were down 4.5 percent from 2014[3] and NAR reported the inventor of unsold homes in October stood at a 4.8-month supply, below six months considered normal.[4]

When the spring season opens, one thing is certain. Inventories will be much larger than in the late fall, with fresh, new listings for sale. Again, the early birds will get the worms.

 How to Get Started

If you’re serious about becoming a homeowner in 2016, you need to be getting ready now. Here’s a checklist to get you started.

Get your credit in order. If you haven’t been managing your credit before, it’s too late to do much about big problems like bankruptcies or tax liens.  You should , however, still order reports from three top credit reporting agencies (Experian, Transunion and Equifax) to look for any errors or questionable calls that you might challenge. Here’s a list of credit do’s and don’ts:

Do:

    Pay all your bills on time
    Pay down as much debt as you can, especially smaller amounts on high interest cards. That will reduce your minimum monthly payments.
    Consolidate high interest credit card debt with a lower interest card or personal loan. Again, you will reduce your minimum payments, which lenders total to determine your debt-to-income ratio.

Don’t:

    Make any large purchases on credit.
    Open any new credit card or store credit accounts. Too much credit can be a negative and every time you apply for new credit, your rating takes a small hit.
    Cancel your oldest credit card. Lenders like to see a long history of good credit.

Get a down payment strategy. To buy a home, you will need cash for a down payment and closing costs, which roughly will come to about 3.5 percent of the total cost of your home. Of course, there are options to consider.

You don’t need 20 percent down for many mortgage options; the average down payment in 2014 was only 10 percent and among first-time buyers, only 6 percent.[5] That’s because most first-time buyers are using FHA financing these days to take advantage of its 3.5 percent down payment requirement. Look into your down payment options, including:


Down payment assistance with a low or no-down payment loan from a state or local housing authority. Feel free to contact us for information if you’re looking to buy a home in Connecticut—we’re kind of experts.

You can’t take out a loan for your down payment, but you can receive assistance from parents or relatives.

Both Fannie Mae and Freddie Mae initiated new loan down payment programs early in 2015. Fannie’s program is limited to qualified first-time buyers and requires a down payment as low as three percent and requires private mortgage insurance or other risk sharing.[6] Freddie Mac’s program also requires only 3 percent down but first-time buyers must complete a home education course, like Freddie Mac’s online CreditSmart course. Minimum credit scores for either program is 620.

You can qualify for a VA loan, which has no down payment requirement if you have 90 consecutive days of active duty service during war time, 181 consecutive days of service during peacetime, or 6 years of service in the Reserves or National Guard. You can also qualify if you are the spouse of a veteran who died in the line of duty, the spouse of a service member who is a prisoner of war or missing in action, or the surviving spouse of a disabled veteran whose disability may or may not have been the cause of death.
Get your documentation in order. Having your paperwork in order when you apply for a loan speeds the approval process along.

If you are emplolyed full-time, let your human resources office know that you plan to apply for a mortgage so that they will be ready to get you the right paperwork.

If you are self-employed, part-tine or seasonally employed or rely on income aside from full-time employment such as alimony, child support, royalties, sales commissions, dividends, etc. you will need documentation and at least three years of tax returns.

source: totalmortgage.com

What’s Your Outlook on the Real Estate Market?

So here’s a true story. Yesterday, a good friend of mine asked the following question via text message: “What’s your outlook on the real estate market…we are looking to buy a place soon.”

That’s the exact message he sent over last night; there weren’t any emoticons by the way, sadly.

I saw the message but did my best to avoid answering it for about half an hour. Then I finally cracked and responded with the following:

“In a word, overpriced. But if you really want to buy a home that’s your deal. It’s not always about the investment.”



Now in the past I may have just left it at “overpriced,” but I’ve learned that such remarks are often met with resistance. I also don’t want to ruin anyone’s grand plans.

And it’s true, buying a home isn’t just about the investment. It’s not simply about timing the market and making a killer profit, that is, unless you’re a real estate investor.

For most people it’s a home. It’s a place to live. There are reasons to buy other than turning a profit.
So my outlook has changed, or perhaps broadened, to include benefits beyond making money.

But my point was basically that it’s not an ideal time to buy in terms of investment, but it could be a great time to buy a home if there’s one you really like and want to own.

At the end of the day, if he gets the home he wants, he’ll probably be happy, even if it doesn’t double in value in five years. Even if it flat lines or drops, he’ll probably still be happy if he truly loves the home.

And over time, he’ll surely build equity and come out ahead as home prices reach new heights.


National Median Sales Price Reaches All-Time High


Yesterday, the National Association of Realtors reported that the national median sales price reached an all-time high.

The price of a median existing home climbed to $236,400 in June, a 6.5% increase from a year earlier, enough to surpass the previous peak median sales price reached in July 2006 ($230,400).

For the record, the median sales price has increased year-over-year for 40 consecutive months, so yes, home prices have been on a tear.

Home sales have also been white-hot, with existing sales hitting their highest level in over eight years (February 2007).

Properties are also being scooped up faster than ever, with the average time on market only 34 days in June, down from 40 days in May, making it the shortest amount of time since NAR began tracking in 2011.

I also got word from a real estate agent friend that new home sales are picking up again. Recently, builders were offering discounts, but now that inventory is so low, they’re increasing prices and slashing discounts.

This is basically a testament to the supply/demand imbalance that is causing home prices to keep rising, and making bidding wars a common situation.

It’s for these reasons that I don’t love the current market as a buyer. At the same time, selling isn’t ideal either because there’s a good chance home prices will continue to increase.

In fact, if you look at real prices adjusted for inflation, home prices aren’t really at new all-time highs. In today’s dollars, the median would have to be closer to $260,000.

So buying because you love a home still makes sense today, as it always will. And you’ll probably do just fine if you can afford the home and stay in it for several years.

But if I had to take a side, I’d say that home prices are bloated and the competition is fierce. That certainly makes it a lot less attractive to buy today than in the very recent past. I’m taking a wait and see approach.

source: thetruthaboutmortgage.com

5 Things Every Renter Should Know Before Buying

Buying a home can be financially rewarding, but it also has its challenges. Many renters can’t wait for the day when they’re able to get the keys to their own house. Ownership can provide a sense of stability, giving you full control to decorate and remodel as you like. But before buying, it’s important to know exactly what you’re getting into. Some people start the homebuying process with rose-colored glasses, or they feel the experience will be far better than renting—and sometimes, it is. At the same time, you need to be realistic and understand that buying might be more expensive and time-consuming than renting.

1. Profits aren’t guaranteed

Some people buy a home because they’re tired of wasting money on rent. Rather than put money in a landlord’s hand each month, they purchase a home to build their own net worth. Unfortunately, there’s no guarantee that buying a home will be financially beneficial.

If you purchase at the right time, your property may appreciate a little each year, which increases your equity, and you can earn a profit when you’re ready to sell. But sometimes, home prices go backwards. Rather than appreciate, property values depreciate. In a bad market, you could end up owing more than you paid for the house. And if you sell before home prices recover, you can lose money and pay out-of-pocket to sell the property.

2. Maintaining a yard takes time and money

If you lived in an apartment before buying a house, your landlord’s maintenance department likely handled the landscaping. As a homeowner, you’re responsible for your exterior, which involves mowing your lawn, pulling weeds, seeding, and fertilizing. Maybe you always dreamed of having a beautifully landscaped yard, but it takes money to maintain an outdoor masterpiece. You’ll also sacrifice your free time. According to the Bureau of Labor Statistics, the average American spends about 1 1/2 hours a week maintaining their lawns and gardens — but as a newbie, it might take you longer.

3. You might pay more for utilities

If you’re moving from an apartment to a single-family home, anticipate an increase in monthly utilities. The amount you pay for electricity depends largely on the size of the property. And if your apartment was smaller than your new home, you can realistically pay an extra $20-$30 every month. You’ll also pay more for utilities if your new home has natural gas, whereas your apartment was electric. Plus, homeownership means paying your own water and sanitation bills.

4. Your mortgage may slightly increase from year to year

Some people purchase a home because they’re tired of yearly rent increases. However, just because you buy a home with a fixed-rate mortgage doesn’t mean your mortgage payment will never change. Your property taxes can increase, which can increase the monthly payment a little each year, and if you file a claim with your homeowner’s insurance, your agency may raise your rate. Since both of these expenses are included in your mortgage payment, any increase or decrease affects your monthly payment.

5. Homeownership can slow your savings efforts

Saving money might be a priority, just know that buying a house can slow your efforts. Ownership can be financially beneficial in the long run, but in the beginning, you’ll drain your savings account buying the property, plus there’s ongoing repairs and maintenance which can cut into your disposable income.

If you’re ready to own your own place, buying can be rewarding and satisfying, but there are things you should know before you even think about starting the process. If you know what you’re getting into, you won’t have unrealistic expectations or be caught off guard.

source: totalmortgage.com

Current Mortgage Rates for Tuesday, December 30, 2014

Yesterday mortgage backed securities gained a little ground, and we’re seeing a continuation of that rally this morning.  If the rally is sustained throughout the session, MBS pricing will be as good or better than it was prior to the last Fed meeting on December 15th (which prompted a rise in rates). On a day-to-day basis, we’ve seen a fair amount of fluctuation in mortgage rates, but on average rates have been generally stable since the beginning of the month.

Are you looking for a new mortgage?  Every big investment deserves a last look.  Give us a chance to beat another lender’s rate, and we’ll give you $25 just for calling (click here for terms and conditions).  Whether we can beat the rate or not.  Call us today!


Today’s Economic Data:

Today’s data is not especially influential, but it’s what we have to talk about today.  First up is the S&P/Case-Shiller Home Price Index for October.  The numbers came in pretty much in line with expectations.  Home prices (Not Seasonally Adjusted) were up +4.5% over last year.  The pace of home price increases continues to slow.  It’s always worth mentioning that this index is a three-month moving average that is reported on a two lag.

The other piece of data issued this morning was Consumer Confidence for December.  The index showed a reading of 92.6, just slightly missing expectations, but up from November’s reading of 91. Perhaps somewhat promisingly, those surveyed who said that jobs were “plentiful” increased, while those saying that jobs were “hard to get” decreased.  On the other hand, those anticipating fewer jobs in the future increased, while those expecting more jobs in the coming months decreased. Somewhat of a mixed report.

As I mentioned yesterday, holiday weeks tend to lead to low volume, and illiquidity in the market. As a result, we need to take any market moves with a grain of salt, and bear in mind that any big swings have a tend to reverse themselves after the holidays.  We’re not seeing anything like that right now, but it’s something you should be aware of if you’re in the process of getting a mortgage but have yet to lock your mortgage rate.

Right now, mortgage rates are close to as favorable as they have been since the beginning of the month.
This Week’s Significant Economic Data:

Monday:

• Dallas Fed Manufacturing Survey: Expected: 9.5, actual: 4.1.

Tuesday:

• S&P/Case-Shiller Home Price Index: 20-city Not Seasonally Adjusted month-over-month: Expected: -0.2%, actual: -0.1%.  Year-over-year Expected: +4.5%, actual: +4.5%.
• Consumer Confidence:

Wednesday:

• Weekly Jobless Claims:
• Chicago PMI

Thursday:

• Markets Closed New Year’s

Friday:

• PMI Manufacturing Index:
• ISM Manufacturing Index:

source:  totalmortgage.com

What to Do If Your House Isn’t Selling

So you haven’t had a showing in weeks and you’ve forgotten what your realtor looks like and you may or may not have started to wonder if you’ll be moving after all.

You’re not alone. With the housing market recovering so unevenly, many sellers are finding that they’re not able to move on as quickly as they’d like. That being said, if your home has been sitting on the market for months, it’s probably time to reevaluate your strategy.

Before you do something drastic, try giving these 5 tips a chance.

1. De-clutter and read up on home staging. Many sellers assume buyers won’t mind the clutter—it doesn’t come with the house, after all. But though buyers know this, it doesn’t keep them from focusing on the knick-knacks when they should be admiring the hardwood. A messy house can also make buyers wonder what else you haven’t kept on top of, or even signal a lack of storage space

If you’re wondering where to start, home staging could be your answer. Staged houses typically sell faster and for more money than vacant or as-is homes. The basic idea? Aim for the hotel look. That means clear surfaces, neutral colors, no personal photos, and minimal furniture.

2. Be willing to compromise. When you’re selling something as big as a house, flexibility is your best friend. For instance, if you’re only showing your home on certain days or during certain hours, you may not be reaching the right buyers, lowering your chances for a sale. Refusing to entertain a lower offer, or to compromise in other ways can also be an issue. Don’t let a deal fall through because of something as small as closing fees or a broken toilet.

3. Fix the little things. Speaking of broken toilets, fixing yours (or your dingy paint job, or that loose tile in the kitchen, etc.) may make a big difference in the eyes of a buyer. No matter how small the fix, it’s still one more thing for a buyer to worry about in the middle of an already stressful move. Try taking a few weeks to get your house as close to move-in ready as possible, and it could just pay off.

4. Make a bigger (or a better) marketing push. Sometimes, selling a house is just a numbers game. If no one sees your listing, or if it’s not appealing when they do see it, you’re not going to be getting the traffic you need to make a sale.

Often, this just means uploading better pictures to your internet listing. These days, most buyers want to get a good feel for a property before they visit in person, and if you only have a handful of fuzzy cell phone photos taken pre-decluttering, you’re not showing your home at its best. Make sure your photos are well-lit, clutter-free, and plentiful.

5. Take a second look at your asking price. Nothing can kill a sale faster than an unrealistic asking price. Many sellers make the mistake of letting their attachment to the house get in the way of their subjectivity. This is why it’s important to listen to your realtor or appraiser, or else know the prices comparable houses in your neighborhood are selling at. It may just be time to lower your expectations.

source: totalmortgage.com

Mortgage Rate News for Tuesday, November 25, 2014

There’s not a whole lot to say today.  Mortgage backed securities rallied yesterday in the absence of any real meaningful economic data.  Even though the Fed’s Quantitative Easing program has wrapped up, the Fed is still making reinvestment purchases of MBS to the tune of $21 billion from Nov 14th-December 10th, and I’m guessing that the Fed sucking up some of the supply of MBS contributed to the rally – and even there, I’m grasping at straws.  Either way, mortgage rates improved yesterday, and somehow are improving/holding their ground this morning despite upward revisions to 3rd quarter GDP. Go figure.


Today’s Economic Data:

This morning we got the second estimate of 3rd quarter GDP, which surprised to the upside, coming in at 3.9%.  The number was anticipated to be revised down to about the 3.3% range after the advance estimate came in at 3.5% last month.  A pretty good report all around.

The S&P/Case-Shiller Home Price Index for August came in a hair above expectations, with the 20-city index showing a seasonally adjusted month-over-month increase of 0.4%.  The non-seasonally adjusted number came in flat.  Year-over-year growth came in at 4.9%, compared to 5.6%, 6.7%, and 8.0% in the previous reports.  Growth in the housing sector continues to slow.

Lastly, Consumer Confidence came in far below expectations, falling from a level of 94.5 in October to 88.7 in November.  The expectation was for a reading of 96.5.  The previous month’s reading was the highest we’ve seen since 2007.  I guess the consumers aren’t so confident after all.  On the whole, today’s economic data was mixed, but recent economic data has been somewhat positive. With regard to the economy and the recovery, I’d reference the (unprintable here) admonition of Mr. Winston Wolf from Pulp Fiction, but it looks like things are moving in the right direction.

That said, rates have been remarkably resilient of late, and I don’t anticipate that will change in the immediate future.  Inflation measures are still low, and talk of rate hikes have been muted.  We’ll get some more key inflation data tomorrow, so there is some risk tomorrow, but given the holiday, the snowstorm, low trading volumes, and short-staffed trading desks, I’d be surprised if we see any great net change in rates in the next couple of weeks, and if we do, I bet it will be transitory.  It remains a good time to purchase a home or refinance your current mortgage.

This Week’s Significant Economic Data:

Monday:

    Dallas Fed Manufacturing Survey:

Tuesday:

    GDP: Expectations: +3.3%, acutal: +3.9%.
    S&P/Case-Shiller Home Price Index: See above.
    Consumer Confidence: Expected: 96.5, actual, 88.7.

Wednesday:

    Durable Goods:
    Personal Income and Outlays:
    Weekly Jobless Claims:
    Consumer Sentiment:
    New Home Sales:
    Pending Home Sales:

Thursday:
    Thanksgiving – markets closed.

Friday:

    Chicago PMI – markets close early.

Are you looking to refinance your current mortgage or buy a new home?  Rates are close to the lows of the year, and you may be able to lock in a low rate for many years to come. Call us today to get a free rate quote or to speak with one of our licensed mortgage professionals.        

source: totalmortgage.com

Survival Tips for Living in a House You’re Trying to Sell

Those last minute panic-cleaning skills you’ve developed for in-law visits probably won’t do you much good when months of home showings are on your horizon. Unless you’ve already found the perfect new home and moved, that means it’s time to develop a long-term strategy, even if it’s just for the sake of your own sanity.
Here are some tips for maintaining that tricky balance between the perfect show house and one you actually live in.


Keep the house ready at all times.

Well, try to.

In reality, you’re probably not going to be able to keep your house showroom-worthy for weeks or months at a time. The key, though, is to be constantly making the attempt. That way, when the call comes and you need to get ready for a showing, you can whip the place into shape quickly.

This is a perfect situation to take a page out of the home staging manual. Box up your family pictures and personal collections in anticipation of your move, and clear all your flat surfaces and as much as your storage space as you can spare. If you need to rent a storage unit in the meantime, then go for it. The less clutter you have in your house, the better it will look to buyers and the easier it will be for you to keep neat.

Ask for as much notice as possible

No realtor will try to show your house without first calling you, but when they call is what you should worry about. Realtors’ practices vary, and you may end up with ten hours’ notice or ten minutes’.

The solution? Ask for notice at least a few hours in advance.

If that’s not enough control for you, you can also turn away showings when your house isn’t ready, or limit showings to certain parts of the day. Keep in mind, though, that “limit” is the operative word here. The harder it is for potential buyers to see your house, the fewer opportunities you’ll have for for a serious offer.

Always leave during a showing if you can—and have a plan

Generally speaking, it’s best to leave the house when you have a showing. No potential buyer wants to be reminded that the house belongs to a stranger, or feel watched as they make their decisions. Plus, you probably don’t need to see someone judging your backsplash.

The actual leaving can be a hassle, though, especially if you work at home or have an already-tight schedule to juggle. The trick is to find a quiet place where you can get work done, like a library or coffee shop, or put off doing your errands until a showing forces you out. That way, showings can still be productive.

Be smart about your privacy

You may be used to leaving personal documents and valuables scattered around your house (no judgment), but that’s probably not smart if you’re welcoming strangers into you house with only an equally strange realtor for a chaperon.

If you’ve done a good job staging your house, you may find that potential buyers feel comfortable enough to poke through your closets and cabinets. Even if you haven’t, some people are just nosey. A good rule of thumb? If you don’t want it seen or potentially taken, best to tuck it away somewhere safe.

source: totalmortgage.com

When Rent-To-Own is the Way to Go

If you’re not familiar with the rent-to-own structure, it’s for good reason.

When the housing market was booming, these options were few and far between. But with the market now moving more cautiously you may see more and more opportunities as a buyer and a seller.

First, let’s take a quick rundown of the basics
If you’re a seller thinking about turning your home into a rent-to-sell property, you first need to set a fixed rent and sale price. These should be negotiable, just like normal home prices, but keep in mind that once that agreement is signed, the sale price is locked into place for the length of the rental term, regardless of how the market changes.

There are a few other special differences. In addition to the rent, the renter is going to have to pay an upfront option fee, which will be put toward the down payment if the renter decides to buy the house and kept by the seller if the renter moves on.  On top of that, the renter will also have to pay a rent premium, or an amount in addition to the rent that will go toward the down payment.

The term of the rental agreement tends to be 1 to 5 years, at the end of which the renter has the option of buying the home at the agreed upon price with the down payment partially funded.

The Positives

If done right, this sort of deal can prove beneficial to both sellers and renters.

Rent-to-own can be a great plan B for sellers having a hard time getting a bite on their property. Houses still aren’t selling as fast as they did pre-2007, and if you’ve already moved into a new home, there’s a good chance you’ll be stuck paying two mortgages. A rent-to-own agreement could easily keep you above water for now and net you a sale later down the road.

Renters (slash potential buyers) benefit too. If you don’t have a great credit score, the rental period gives you time to build it up. Similarly, if you don’t have the funds saved up for a down payment, rent-to-own can be a smart way to put money toward one.

…and the Negatives

No surprises here—there are potential downsides for both the seller and the renter.

If you’re the seller, you have to abide by the contract even if the value of your home rises, or if someone makes an offer to buy it out right. If the renter backs out, you’re also back to square one, and potentially stuck with mortgage payments on a second house.

On the renter end, making a late rent payment often voids the option fee for that month, which will take a chunk out of your eventual down payment if you’re late a few times a year. If you decide not to buy the house, you won’t be able to get your option fee back, which means you may be out thousands of dollars.

There have also been cases of less-than-legit sellers offering rent-to-own options on houses under foreclosure. In this scenario, the bank gets the home and the renter is out their option fee and premium. Know what you’re getting into, and there should be no reason why both buyer and seller don’t benefit.

source: totalmortgage.com

Have Massive Home Price Gains Eclipsed the Benefit of Low Mortgage Rates?

The new threat to those resisting the urge to buy real estate (how dare you) is the risk of rising mortgage rates.

All the pundits believe interest rates are headed closer to 5% for a 30-year fixed, up nearly a full percentage point from current levels.

The sales pitch is pretty straightforward – if you wait any longer you’re really going to be priced out of the market, what with home prices and mortgage rates on the rise.

If you think things are expensive today, worry about tomorrow, they say.


But you have to question whether it’s a good deal to buy at this point, given the tremendous price increases over the past couple years.


Are Low Interest Rates Really a Strong Enough Tradeoff?


Sure, low mortgage rates are great. They make monthly mortgage payments more affordable, even if home prices are (a lot) higher than they once were.

And despite wages being stagnant, people can afford to buy more expensive homes because interest rates are so cheap. That’s the point, right?

But if you look at things from a home price-to-income ratio perspective, property values look pretty inflated historically.

So are the low rates still incentive enough to buy a home? And should you buy now because rates and prices are only going to climb higher?

That’s the million-dollar question, and one nobody can really answer with absolute certainty.

You could argue that we’re due for another correction after two solid (insane) years of gains. It’s clear home price growth is already slowing down, and it could even turn negative in the near future.


Just Take a Look at Property Histories

 

You don’t have to be a real estate genius to see what I’m talking about. Just go to Redfin or Zillow and scroll down to the property history for just about any for sale listing that sold recently.

You’ll see something like the screenshot above, a home that was purchased relatively recently and listed not too long after for a huge premium. Sure, they probably flipped it (and that kitchen looks absolutely breathtaking), but come on.

In this example, the home is being sold for 56% more just five months later! And this isn’t an outlier, it’s the norm in today’s bloated real estate market.

Just to do a little math, you could have purchased this home for $362,000 earlier this year and put down 20%, leaving you with a mortgage of $289,600.

Factor in a mortgage rate around 4.125% for a 30-year fixed and the monthly mortgage payment is just over $1,400.

But the asking price is now $564,900 (notice the price cut), which requires a down payment of $112,980 to get to 80% LTV (that’s about $40,000 more you need to bring to the closing table).

At a loan amount of $451,920, you’d be looking at a monthly mortgage payment of $2,190 at today’s ultra low rates (4.125% on a 30-year fixed).

To put it in perspective, mortgage rates would need to rise to about 8.25% at the original sales price for the monthly mortgage payment to be a similar amount (roughly $2,175).

In other words, home prices seemed to have shot way too high despite the low rates doing their part to keep things reasonable.

Sure, low mortgage rates make this home a lot more affordable to a lot more people, even at today’s inflated price, but it requires a much larger down payment.

And what happens when interest rates do rise to more historic norms? Who will buy this house from you at a premium in the future if everyone is priced out?

I suppose the takeaway here is to be really cautious when searching for a home to buy today, instead of just trying to get in to avoid missing the boat. A year or two ago, any house would do, now you need to be a lot more particular.

source: thetruthaboutmortgage.com

Home Prices Are Expected to Peak in 2016, Then Do Pretty Much Nothing Through 2022

Are you still looking to buy a place before time runs out? Don’t want to miss out on the next big housing boom?

Well, it might already be too late, assuming you’re looking to turn a big profit, or any profit at all.

A new report from two bond strategists at Bank of America Merrill Lynch, whose merger was a direct result of the latest financial crisis, predicts little upside from current levels.

In fact, after a couple years of modest growth, home prices are basically expected to go nowhere for the foreseeable future.

Home Prices Are Nearly 10% Overvalued Today

The pair, Chris Flanagan and Gregory Fitter, contends that U.S. home prices are now 9.7% overvalued relative to household incomes, using the S&P/Case-Shiller Home Price Index as the measuring stick.

Simply put, incomes haven’t done a whole lot lately, but home prices (as we all know) have surged since the crisis abated.

In fact, even after chalking double-digit gains from 2012 to 2013, asking prices in many hot markets are still more than 10% above year-ago levels.

According to their math, home prices were about six percent below fair value at the end of 2011. So it looks as if we overshot the mark once more.

Unfortunately, after stellar gains like that it’s pretty difficult to keep the momentum going, even with limited supply and low mortgage rates available.

After all, affordability has its limits, and it’s finally being tested after a few silly good years.


Not Much to Look Forward to Now

While they noted that their outlook is “well out of consensus,” Flanagan and Fitter only see home prices rising another three percent annually each year for the next two years.

That would push home prices to a level that is around 12% above fair value as determined by household income, compared to six percent below fair value when home prices bottomed in late 2011.

Then from 2016 to 2022, their model forecasts modest declines followed by an eventual recovery resulting in flat net annualized home price gains over that period.

In other words, after this current seller’s market spits out a few more nominal gains, home prices are going to settle into a range and stay there. Of course, that’s not necessarily a bad thing.

In fact, the pair thinks it’s a “fantastic outcome” and just what policymakers had in mind when establishing new regulatory framework and lending laws.

Their research echoes that of Trulia’s Bubble Watch, which revealed that home prices were still about three percent undervalued, but expected to be just right by the end of the year, or early next year.

The takeaway here is that no one wants another housing bubble just years after the worst financial crisis in recent history.

So yes, it’s a bummer that home prices aren’t going to continue flying higher and higher, but it should mean a more sustainable market for years to come.

Of course, these are all just assumptions and predictions. Economists are often wrong (and typically never right), so taking their word for it is a bit of a stretch as well.

Additionally, I doubt any model predicted home prices would rise as much as they did during the last boom, so assuming they won’t deviate from “normal levels” this time around is also hard to swallow.

Lastly, remember that this is the national picture, and that home prices can and will vary tremendously from metro to metro.

I’m just curious what will happen after 2022…

source: thetruthaboutmortgage.com

Hooray, Home Price Gains Are Slowing and Should Be Just Right by Year End

If we’ve learned anything from Goldilocks and the Three Bears, it’s that we should strive for “just right,” no matter if it’s porridge or home prices.

After all, if they’re too hot, a correction surely looms, and if they’re too cold, it means something isn’t quite right with the housing market and the economy at large.

Fortunately, home prices finally seem to be settling into long-term fundamentals, according to the latest edition of Trulia’s Bubble Watch.

 

Homes Prices Still 3% Undervalued 

 

The real estate portal’s chief economist Jed Kolko noted that home prices were only three percent undervalued in the second quarter, which tells us all is still good over at Bubble Watch.

 

 

Yes, there were signs we were headed right back to 2006, seemingly forgetting lessons learned just years earlier, but then accelerating home price gains abated.

Sure, home prices are still on the rise, but the pace is a lot more gradual, which as the title of this post suggests, is a good thing.

At the worst of times, back in the first quarter of 2006, home prices were 39% overvalued according to Trulia. We all know what happened next.

About five years later, we hit bottom as home prices were considered 15% undervalued in the fourth quarter of 2011.

Since then, it’s been a white-hot housing market, that is, until the past few quarters as reality finally caught up with us.

Now we’re on pace for a perfectly valued housing market by the final quarter of 2014, or perhaps the first quarter of 2015, though we still remain slightly undervalued.

In the first quarter, home prices were five percent undervalued and they were eight percent undervalued a year earlier.

The only caveat here is that artificially low mortgage rates might be throwing the numbers off a little bit, but if rates stay low for a long time that shouldn’t be an issue.

Home Prices Only 79% Back to Normal

 

As it stands, we’re only 79% back to normal in terms of whether home prices are under or overvalued. But a year ago we were 44% back to normal, so if we continued on that pace we’d swing too far the other way.

Heck, even a quarter earlier we were only 68% back to normal, so you have to wonder what the rush is.

The good news is that as we approach “normal,” home price gains are slowing, meaning they should be sustainable as we reach that sweet spot.

In fact, for the first time in nearly two years no local housing market has registered a year-over-year gain of more than 20%, so even the really, really hot markets are cooling off finally.

Again, home prices are still rising, but they’re climbing at a more normal pace, which is good for housing long-term.

At the same time, there are still markets that are getting a tad frothy, and those that have yet to ride the national housing train higher.

 

 

Orange County the Bubbliest Market

 

 

If you look at home prices relative to the fundamentals (historical prices, incomes, rents), Orange County, California was 17% overvalued in the second quarter.

While that might seem high, consider the fact that OC home prices were 71% overvalued relative to fundamentals back in the first quarter of 2006.

It’s not to say that home prices there have plenty of room to run before we can all jump ship and make a tidy profit again, but it does give you some perspective if you’ve got returning bubble fears.

Perhaps more disturbing is that eight of the 10 most overvalued metros are located in California, with Austin and Honolulu the only outsiders.

Akron Is Still Cheap

 

On the other end of the spectrum, it continues to be the Midwest that is undervalued, even with the spectacular home price gains realized over the past couple years.

The metropolitan area of Akron, Ohio is still 21% off if you consider the fundamentals, though it only ever climbed 18% above where it maybe should have during the prior boom.

Four of the bottom 10 metros can be found in Ohio, and of course Detroit is on that list, despite being an underdog story going forward.

Nationwide, 76 of 100 markets are still undervalued per Trulia and those that overvalued are only “just a bit” beyond where they should be, which means we don’t need to hit the panic button just yet.

source: thetruthaboutmortgage.com