New home sales rise in December

30-year fixed-rate mortgages are still hanging around 5%.  You can see how mortgage-backed securities have rallied back nicely from the jump in rates at the beginning of April if you take a look at the chart posted at the bottom of this e-mail.  Ironically, the Goldman Sachs concern has caused a “flight to quality” stability in the bonds while the stocks are languishing a bit.  It does seem the stock market will take this latest accusation in stride.  Of bigger concern is how the uncertainty caused by further government regulation will affect the various markets.  That huge issue still has a considerable amount of time to play out before we begin to know where we are headed.

Another week with lots of news that can move the market one way or the other.  The big questions for many investors are how big an impact will all our deficit spending have on inflation and when will we see the effects on commodity prices and interest rates?  The value of the dollar has been negatively impacted recently and the main thing that has been holding mortgage rates down has been the fact that the Federal Reserve has been buying about 80% of the mortgage-backed securities since the beginning of 2009.  Today rates are holding steady at levels generally below 5%, depending on the usual multitude of factors.  You can see the chart at the bottom to understand price movement over the past 10 days.

Still no word on whether or not the $8,000 tax credit for first-time homebuyers (those not owning a primary residence within the most recent three years) will be extended beyond November 30^th.  Here is a good summary of the benefit realized thus far and the reason it may be expanded and extended: By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. Mark Zandi, chief economist of MoodysEconomy.com, favors extending the current credit until June 1, 2010, and making it available to all home buyers. "The most fundamental argument for the credit is that nothing works in the economy if housing is falling, it hurts household wealth and credit becomes tight," Zandi said. Source: CNN/Money

Fixed rates are great again this morning and are closing in on 4.5% with full costs (including a 1% origination fee) and a small additional discount for 30-year mortgages with resulting APRs of about 4.7% to 5.25%, depending on loan size, lock duration, FICO scores and the other usual variables.  Enjoy these rates while they last because the Fed is almost done buying mortgages and has been the buyer of about 80% of new mortgages since the beginning of 2009.

I just ran across an interesting article on diminished sales of luxury homes: http://www.usatoday.com/money/economy/housing/2009-07-07-luxury-homes_N.htm?obref=obinsite

Here is an excerpt:

High-priced homes are languishing on the market. Nationally, at the current sales pace, there's about a 40-month supply of homes on the market for $750,000 or more, according to the National Association of Realtors. That's more than double the stock in mid-2007, before the credit crunch. By contrast, there is now less than a 10-month supply for all homes.

Sales of existing homes priced above $750,000 made up 2.3% of all sales in the first three months of this year, the Realtors' group said. That's down from 4.4% of homes sold in 2007, before high-priced mortgages dried up.

"The high end is the worst performing sector of the residential real estate market, unquestionably," said Bernard Baumohl, Chief Global Economist of the Princeton, N.J.-based Economic Outlook Group.

The recession and collateral damage in the stock markets, have knocked many luxury buyers out of the market. Falling home prices coupled with new appraisal rules have scuttled many deals. And lenders have jacked up interest rates and down payment levels for high-priced mortgages.

You might be surprised to learn what counties are considered as “Denver-Aurora” in the Case-Shiller Index.  They are listed below, for your reference.  Clear Creek, Elbert, Park and Gilpin are probably not counties you would expect to be included in the region.

Denver-Aurora, CO Metropolitan Statistical Area includes:  Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson & Park counties.  Below I have made up a chart that shows the Denver-Aurora index starting with June, 2007 and ending with the figure just released for July, 2009.  Other places have their own cycles and ours seems to be to rise a bit through the summer over the past few years and then decline in the fall, winter and spring.  Of course, different neighborhoods have performed in a very different ways within our 10-county region.  If you want to see the full data, click: Case-Shiller Home Price Indices. As you well know, past history does not necessarily in any way predict the future.  J

Phil Hughes Mortgage News

This week marks another Federal Reserve meeting.  Can you believe six weeks has already passed since they last convened?  As usual, the Federal Open Market Committee adjourns its 2-day meeting Wednesday at 2:15 PM Eastern.  We may see some volatility around what is said in the summary comments in a couple of days, but the overnight lending rate is expected to remain at 0 to .25% for the moment.  Fixed rates are staying relatively steady as you can see in the chart at the bottom if this message and delivered rates are still about 5% or a bit lower or higher, depending on costs.

More than 1.4 million Americans have already claimed the new tax credit for first-time home buyers (FTHBs), according to a report from the IRS. However, for the many would-be home buyers, the extension of the $8000 new home buyer credit (ending on November 30th) is now of particular concern.  Those considering a purchase in the next few months must go through the whole home buying process and close before the end date, unless it is extended.  Cash for clunkers and the improved housing market have shown that stimulus payments that directly help consumers can have a strong impact.  However, the FTHB tax credit program is already likely to cost the government at least $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill at the beginning of the year.

New legislation has been proposed last week to extend and even possibly expand the size of the benefit and somehow include more than FTHBs.  How quickly it progresses through the house and senate and whether or not the votes are there to ensure passage of a measure that would further increase our federal deficit remains uncertain.  PH

30-year fixed rates dropped to about 5% last week as a result of the well-bid treasury auctions and mortgage purchases by the Federal Reserve.  This morning rates are moving back up as the stock market opens in positive territory.  The chart at the end of this message shows 10 days of activity.  Job losses are expected to slow to “only” 350,000 this week and rates are likely to take their cue from Friday’s report.  If unemployment losses continue to ease, rates will likely start moving up based on the capital flow to business. 

A significant number of real estate buyers have been sitting on the fence, waiting for prices to come down.  At this point the numbers are showing the reverse is happening in many neighborhoods and price ranges and when rates start to rise, the cost of waiting increases further.  Last week’s positive Case-Shiller numbers were widely publicized, but in case you missed the news, take a look at my Wednesday blog and the chart below showing prices increased in 15 of the 20 markets covered by this widely respected report:

Phil Hughes Mortgage News

On May 8, 2009 the Federal Reserve Board (Board) issued a final rule implementing changes to the Truth in Lending Act made by the Mortgage Disclosure Improvement Act of 2008 (MDIA). You will be hearing about MDIA because the final rule advanced to July 30, 2009 the compliance date for early disclosure requirements adopted by the Board in a July 2008 rulemaking, and expands the requirements.

The new MDIA rules affect loan applications dated July 30, 2009 and later.  The main impact appears to be to delay loan closings where sufficient days have not passed from the initial or updated Good Faith Estimate (GFE) and Truth-in-Lending (TIL) being sent by the lender and properly acknowledged by the borrower.  This will take careful planning and execution on the part of lenders to avoid unexpected delays.  Trouble can generally be avoided by meeting with the borrower in person or using an electronic acknowledgement procedure when timing is tight.

Over the weekend I got a call from a real estate broker with a buyer who told her new legislation now requires the seller to provide and pay for an appraisal.  This does not seem likely to be true, but many other rumors and misunderstandings are already floating around as a result of the MDIA.  It is true that borrowers are not allowed to pay for appraisals until their initial GFE and TIL have been acknowledged.

Mortgage markets carved out a wide range last week, creating a mixed bag for mortgage rate shoppers and rates are drifting higher this morning.  Rates were much improved on Monday and Tuesday, much worse on Wednesday and Thursday, and idle for most of Friday.  This morning’s release of June New Home Sales data showed a stronger-than-expected increase of 11.0% and that news was mortgage market unfriendly.

Overall, mortgage rates were essentially unchanged last week (see the chart at the end of this e-mail), but don't expect the volatility to subside. 30-year fixed rates still range between 5.125% and 5.5% this morning.

There is a ton of economic data scheduled for release this week -- at least one new data point per day, actually. Each could cause mortgage rates to rise or fall:

• Monday : New Home Sales
• Tuesday : Consumer Confidence
• Wednesday : The Fed's Beige Book
• Thursday : Initial Jobless Claims
• Friday : Personal Consumption

If the data points to a rosier outlook for the U.S. economy, expect that mortgage rates will rise.  If data looks weak, rates should fall.

There's another even more significant factor influencing rates this week, too, and that's the U.S. Treasury's plan to sell its most weekly debt in history. Across four separate auctions, the government is selling $115 billion in notes.  If the notes in any of the auctions are in low demand, bond prices will fall, pushing up rates.

This week in mortgage markets is among the most eventful we've seen all year.  Expect mortgage rates to be on the move.

Phil

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Last week we had a Federal Reserve meeting adjourn on Wednesday with no immediate impact on the bond market, as you can see from 6/24/09 on the chart at the bottom of this message.  Thursday and Friday market sentiment resulted in some nice improvement that has carried through to today with rates closing in on 5% but showing signs of strong resistance to going lower.  This is a shortened trading week due to Independence Day and several key economic releases are coming which may cause big market swings.  See today’s blog for more details.  The number of existing and new homes offered for sale has been dropping and that bodes well for home prices in many parts of the country.  In case you somehow missed this headline from Forbes: “Denver is America’s Best City to Buy a Home”.  You can read all about it here: http://www.bizjournals.com/denver/stories/2009/06/22/daily46.html

The following national news is also positive:

“Mixed economic reports on the state of the housing market helped hold rates fairly flat this week,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Existing home sales rose for the second consecutive month in May by 2.4 percent, slightly less than the market consensus forecast; however the median sales price w as 16.8 percent below that of the same time last year, according to the National Association of Realtors® (NAR). In contrast, new home sales fell 0.6 percent and the median sales price was only 3.4 percent lower than May 2008. "On a more positive note, the inventory of unsold homes has lessened from a year ago, which may help cushion further house price declines. The number of existing homes for sale was 15.3 percent below that of May 2008, and new homes for sale fell by 35.9 percent. In addition, distressed properties accounted for only about one-third of existing home sales in May, down from over a half in March, according to the NAR.”

Cheers

 Great update on interest rates from Phil Hughes newsletter!

Foreclosure filings fell 6 percent in May from April, according to RealtyTrac Inc. More than 321,000 households received at least one foreclosure-related notice last month — 18 percent more than a year earlier — but the smallest annual gain since June 2006: http://www.cyberhomes.com/content/news/ap/09-06-10/foreclosures-fall-6-percent-in-may-from-april.aspx.  Look at my blog topics below for how the Pareto Principle applies to foreclosures.

How price indexes can be misleading regarding real estate value: http://www.cyberhomes.com/content/news/09-03-18/a-home-price-index-can-be-misleading.aspx  

Under new federal legislation, tenants have additional rights when the landlord loses the home through foreclosure.  Here are the details:

Tenants are Better Protected in the Event of Their Landlord’s Foreclosure

If the new buyer intends to occupy the home as their own primary residence, the tenant must be given a 90 day notice before being forced to leave.

Tenants are now allowed to occupy the property until the end of their lease term (even after the landlord goes through foreclosure) as long as the new buyer does not intend to occupy the new home as their own primary residence.

Interest rates have rallied back to drop below 5.5% based on weakness in the stock market and other factors, including Japanese comments from Thursday and Russian comments today that both governments have confidence in the US financial system and the US dollar.  You can see from the chart (far) below how the extreme movement in mortgage bonds continued last week and today.  PH

 Rates are starting to increase! This is from Phil Hughes at Catalyst Lending. We start the week with a continued deterioration of mortgage investor confidence that has translated to 30-year fixed rates that are about 5.5% after Thursday and Friday’s big jumps (see chart below).  Weakness in the stock market has caused the rate increase to slow for the moment this morning.  The market trading seems to be driven largely by fear and emotion these days after several months of stability where many of the mortgage purchases have been made by the Federal Reserve… over $500 billion already this year.

I will send out a special release this week if I find out definitive news on funding sources and procedures for getting the $8,000 tax credit money to the closing table for first-time homebuyers (FTHBs).  The biggest discovery to date is that parents or other co-signers who are not FTHBs are apparently allowed under new IRS rules.

You may enjoy taking a look at the top 100 places to relocate from my June 4th blog below.  In case you were wondering, here are the Colorado communities that made the list:

Castle Rock, CO
Grand Junction, CO
Highlands Ranch, CO
Steamboat Springs, CO

We are seeing a proliferation of Automated Valuation Model (AVM) websites.  Two of those most commonly referenced by the public are www.cyberhomes.com and www.zillow.com.  As a general rule, I have found Cyberhomes to show much lower (more realistic?) values than Zillow.  On Zillow anyone can change the underlying data and produce very unrealistic value results.  For example, a home that recently appraised for $610,000 shows a value of $818,000 today on Zillow because the owner has included the finished square footage of his large basement and more and created a 3,200 square foot error in the data Zillow used to arrive at a conclusion of value.  I am the first to agree that there is no substitute for a skilled Realtor or appraiser’s opinion of value after a visit to the home in question and a careful look at the value adjustments suggested by recent comparable sales, taking into account condition, location and a myriad of other features and factors that are typically missed entirely in the AVM approach.  For the record, on the home I referenced earlier, Cyberhomes values it at $608,000 this morning.

Buyers and sellers can become very confused by looking at AVM information, as well as the information from county assessors.  Errors of 10% or more are very common these days when comparing current value to an AVM or current assessed value.  The fact that the assessors now show values that date back to 6/30/08 is widely known by Realtors but often overlooked by the general public.  PH

You can see by the charts at the very bottom of this page that bond trading has been choppy since Wednesday, to put it mildly.  The Wednesday 5/27 price change of nearly 2% is as extreme as I can recall seeing in 23 years of watching the bond market.  Rates rose by .5% or more in a matter of 90 minutes on May 27th.  The translation, especially after the losses this morning (in contrast to the happy stock market improvements) may mean we will be saying farewell to 5% and lower rates “forever”.  The key force that is driving rates higher is the realization that the Federal Reserve is not able to control rates over the long haul and that the massive federal deficits will have to be financed much sooner than later, competing for money with the private sector and thereby driving rates higher.  This morning’s economic releases were more positive than expected and the bond traders are very nervous as shown by the rapidly rising rates once again.

Now for the good news: HUD has finally released its mortgagee letter on financing the $8,000 tax credit for the First-Time Homebuyer (FTHB).  Lots of details to learn and you can find the HUD letter here:  www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc.  I will let you know more as soon as I get any solid confirmation on precisely how we will get $8,000 to a buyer at closing rather than making them wait a few weeks after closing to receive the credit by filing an amended 2009 tax return.

Most or all sources may restrict funding to low-income buyers based on family income.  Details are not yet known, based on Friday’s Mortgagee Letter 09-15.  I get lots of questions about the tax credit based on various scenarios.  You can learn for yourself and your clients by reading or copying and sending the following info straight from the IRS:

• First-Time Homebuyer Credit Questions and Answers: Basic Information
• First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2008 
• First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2009 
• First-Time Homebuyer Credit 

One of the most interesting thoughts contained in the above Q&A is that a FTHB can have a parent or other relative who is not a FTHB as a cosigner and still get the tax credit.  Tricky language answering questions about husband or wife owning without their spouse.  In general it seems to disqualify the non-owning spouse as a FTHB for the purposes of the tax credit.  As always, advice from a tax professional is recommended

Here is an important news release from last week that should help many first-time homebuyers and their real estate agents:

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.

Previously, most buyers wouldn't receive the funds until after they filed their amended tax returns, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C.

He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

I have not yet seen the official mortgagee letter announcing FHA’s details, nor do I know exactly how the short-term loans will work and who will provide them.  We will share more information as it becomes available.  This week will be shortened by early market participant departures Friday for the extended Memorial Day weekend.  Not much economic news on the horizon and the stock market is starting the morning on a modest rally that is having a tiny drag (see the chart at the end of this e-mail) on the mortgage market which continues to be artificially propped up by the Federal Reserve buying mortgages directly in huge quantity ($100 billion or more per month).  PH

Phil Hughes Mortgage News

Here is an important news release from last week that should help many first-time homebuyers and their real estate agents:

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.

Previously, most buyers wouldn't receive the funds until after they filed their amended tax returns, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C.

He says FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

I have not yet seen the official mortgagee letter announcing FHA’s details, nor do I know exactly how the short-term loans will work and who will provide them.  We will share more information as it becomes available.  This week will be shortened by early market participant departures Friday for the extended Memorial Day weekend.  Not much economic news on the horizon and the stock market is starting the morning on a modest rally that is having a tiny drag (see the chart at the end of this e-mail) on the mortgage market which continues to be artificially propped up by the Federal Reserve buying mortgages directly in huge quantity ($100 billion or more per month).  PH

Phil Hughes Mortgage News

Update on FHA First Time Buyer tax credit from Phil Hughes , Catalyst Mortgage.

News reports that the federal government is backing away from its plan to permit eligible borrowers to monetize the $8,000 first-time homebuyer tax credit are off the mark, a spokesperson for the U.S. Department of Housing and Urban Development says. "The technical details are still being finalized and will soon be published in a mortgagee letter and posted on our Web site," Lemar Wooley, a HUD spokesperson, told Realtor Magazine last week. Under the guidance that’s under development, state agencies and other HUD-approved entities would be able to provide short-term bridge loans that households could use to help with their downpayment. The loans would be repaid with the proceeds from the households’ federal tax credit. The loans were announced on the opening day of NAR’s 2009 Midyear Legislative Meetings in Washington, D.C., last week. In his announcement, HUD Secretary Shaun Donovan said guidance would be issued shortly. When the guidance is released, it is expected to cover eligible lenders and set parameters for loan terms and repayment. Source: Realtor Magazine Online

Fixed mortgage rates have been moving up a bit as of late last week, though 30-year quotes are still a bit below 5% for many scenarios.  The efforts of the Federal Reserve to keep rates down on the longer-term U.S. Treasuries are failing in the face of huge pending government borrowing and many other factors.  An interesting note from this morning is that May’s Consumer Confidence survey reading surged to 54.9% from 40.8% in April.  This news is slightly mortgage market unfriendly and the stock market is rallying in early trading on this positive survey result.  At the bottom of this e-mail you can see the clsoing quotes for mortgage bond trading over the past 10 days.