Interest Rates Move Up From New Lows: Freddy Mac reported that last week’s30 year fixed rates dropped to 3.620% with a .7 discount fee. This is a low point going back to May of 2013 when rates moved up from historic low points over the 50 previous 50 years. I have reviewed the factors that have moved rates lower in previous issues and those same factors are in place today. One of the more recent factors is strengthening of the US Dollar. This has made US based assets more valuable when compared with global assets. The value Euro has moved from about $1.40 dollars to about $1.150 dollars over the last year. It appears that this trend will continue. The increased value of US based assets makes our bonds more attractive, that attracts more buyers and that lowers rates. The other factors that keeping rates down are: very low inflation rates, a stock market that seems to be topping out, European and Asian economies are slowing and the Fed continues to buy mortgage bonds through their reinvestment program. This week interest rates moved off low points after the European Central Bank announced their program to purchase European assets. This gave European stock markets a boost and drew some money out of US bond assets. For now it looks like interest rates will stay in the new range which has 30 year fixed rates just below 4.000%. There are many who believe rates will move lower as economic activity around the world is less than robust.
"There's no place like home." News from the housing sector was front and center, and with rates remaining near historic lows, great opportunities remain for those looking to purchase or refinance. Housing Starts sizzled in December, rising 4.4 percent from November to 1.089 million annualized units, coming in above expectations. The rise in Housing Starts was the strongest annual pace in seven years and it was led by a jump in starts for single-family homes, which reached their highest level since early 2008.
Building Permits, a sign of future construction, did decrease by nearly 2 percent in December but still came in at a strong 1.03 million. Both Building Permits and Housing Starts figures were also revised higher in November.
Also of note, the January National Association of Home Builders Housing Market Index was 57. Readings above 50 are considered positive sentiments about market conditions. Meanwhile, December Existing Home Sales rose from November. However, sales in 2014 were lower compared to 2013 due to a sluggish start in the beginning of the year. Overall, the housing sector continues to improve.
In news overseas, the European Central Bank has announced that it will enact a massive Quantitative Easing, or QE, style of Bond purchases to fight off deflation and promote economic growth in the region. The news has caused extreme volatility in U.S. markets. However, Mortgage Bonds and home loan rates (which are tied to Mortgage Bonds) remain near historic best levels.
The bottom line is that home loan rates remain near some of their best levels of the year, and now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.
Real Estate Miscellaneous Stats
2014 Existing Home Sales End Strong: After a year of slowing activity Existing sales rebounded in December. If we annualize the December numbers it would be a pace of over 5 million sales per year. Total sales for 2014 were 3.1% below sales levels for 2013. Sales activity increased last year after inventory improved during the summer. Inventory did tighten by the end of the year after the increased pace in sales had its affect. First time home buyer activity remained low with numbers around 29% it was the lowest level in 30 years. 26% of all sales were cash which is still a major part of the market. 11% of sales were distressed in 2014 which is down from 14% in 2013.
Home Sales Hit Lowest Level for 6 Months in November: The NRA released existing home sales numbers for November and all reqions of the country showed slowing activity. It appears that 2014 will be slower than 2013 after a 3 year rally in Real Estate. There have been fewer distressed sales than in 2013 and first time buyers are below the traditional 40% level at 31%. Zillow predicts home sales will rebound higher in 2015.
Lenders Reluctant To Quote Rates To Self-Employed Borrowers: A new Zillow report indicates that self-employed borrowers have a more difficult time identifying lending options. They report that self-employed receive 40% fewer loan quotes primary due to lower credit scores. "Self-employed borrowers will no doubt face headwinds when trying to get a loan. Low credit scores, coupled with a mountain of paperwork lenders must complete specifically for self-employed borrowers, make them unattractive," said Zillow Vice President of Mortgages Erin Lantz. "So, despite self-employed borrowers with high incomes appearing on paper to be better situated to repay their loan, they're often overlooked by lenders. In cases like this, it really pays to shop around." The report goes on to say that self-employed borrowers typically have higher household incomes, Zillow reports that their incomes are 81% higher on average. They also place larger down payments and buy more expensive homes. The down side is they are twice as likely to have credit scores below 680. These factors were the motivation behind RPM’s ‘Tailored Product Line’. There are 4 different products that are targeted at self-employed borrowers. They allow credit scores as low as 660 and loan amounts as high as $4 million. These products offer truly unique solutions to challenges faced by your self-employed clients.
FHA Makes Positive Changes for 2015: We start the year with some good news from FHA. It has been pretty much negative changes to FHA over the last few years as HUD has had to make changes to keep the program solvent. The rash of foreclosures during the Great Recession depleted the FHA reserve fund so FHA was forced to dramatically increase their mortgage insurance premiums. This has made FHA loans much less affordable and did not compare well to comparable conventional loans. FHA has just reversed course and lowered the annual MI premium by .50%. This will lower the monthly payment for FHA borrowers. They also announced a max loan amount increase for our area up to $517,500. Good news also as prices have increased.
Fannie Mae and Freddy Mac Increase Loan Limits and Relax Lending Standards: Recently Fannie and Freddy made announcments clarifying policies regarding ‘reps and warrants’ for lenders. This has reduced uncertainty for mortgage banks regarding their risk of having a loan rejected by the GSE’s. This should loosen up underwriting at many banks. Now they have added to the good news by announcing a loan limit increase to $517500