Mortgage markets improved last week on domestic jobs data and international banking concerns. The news triggered buying in the bond market and, as a result, conventional, FHA and VA mortgage rates in California improved for the 4th consecutive week. Mortgage rates are now at a 6-week low but probably shouldn’t be. It underscores just how important global events can be to U.S. mortgage markets.
For example, corporate earnings continue to improve and key elements of the economy are strengthening. Even the Federal Reserve acknowledges this. In most circumstances, that would be a boon for the stock markets and bond markets would suffer, including mortgage bonds. Last week, that wasn’t the case.
Early in the week, as (1) China tightened its monetary policy, (2) Greece did little to quell lingering default fears, and (3) Spain raised its deficit forecasts, global investors sought to reduce their collective risk exposure. For safety of principal, many sold some of their more aggressive positions and moved the cash proceeds into the U.S. bond market — which includes mortgage bonds. On Wall Street, this type of trading pattern is called a “flight-to-quality”. Because mortgage bonds are backed by U.S. government entities, the debt is considered to be ultra-safe. Last week’s extra demand for bonds helped to push prices up and mortgage rates down.
And that was before Friday’s weak jobs report. Although the Unemployment Rate fell to 9.7%, the government reported a net loss of 98,000 jobs last month and this, too, helped mortgage rates tick lower. This week, we’ll hope for momentum to continue. There’s very little domestic news to move rates this week so keep an eye on the global market for similar stories like what we saw last week. Or, if you’re not sure what to look for, just give me a call or send me an email and I’ll be happy to watch the markets and mortgage rates for you.
As mortgage lenders tighten approval standards in California and nationwide, the importance of a good credit score is rising. Credit scores not only make the difference between a mortgage approval and mortgage turn-down, but they also play a large role in determining your actual mortgage note rate. In the 3-minute piece, the NBC Today Show talks about 7 ways that homebuyers ruin their credit — often by accident. Some of the highlighted mistakes include:
Closing open credit cards
Making appliance buys on credit prior to closing
Asking creditors to lower credit balances prior to closing
In general, a 740 FICO will insulate a borrower from the higher costs and/or rates associated with low credit scores. Below 740, though, every 20 points adds to the damage. Watch the video and apply what you can to your own situation. The more you know, the more you can save.
Our good friends at 1000 Watt Consulting have posted a blog about Apple’s recent announcement of the iPad, which they feel will revolutionize the market. How does this effect the world of real estate? We have our ideas, and so do they.
What could we here at PMZ create for agents and the general public to use on the iPad? What would help maximize time and ease our clients in their home buying search? An app that builds productivity for agents in the field?
We’d like to know your thoughts. If you could create your very own application, what would it look like? Leave a comment and tell us your thoughts:
On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls data from the month prior. The data is more commonly known as “the jobs report” and it swings a big stick on Wall Street. Especially now — many analysts believe job growth is tightly linked to the future of the U.S. economy.
Therefore, when January’s jobs report hits the wires at 8:45 AM ET tomorrow, Stockton home buyers would do well to pay attention. A net job reading that is much higher (or lower) than Wall Street’s expectations can make a serious change in home affordability. Wall Street expects that the economy added 13,000 jobs last month. It would mark the second time in 3 months that the jobs report showed a net monthly gain. In November 2008, the economy added 4,000.
Jobs matter to the economy for a lot of reasons, but one of the biggest is that when Americans are working, Americans are buying and consumer spending accounts for 70 percent of the economy. Job growth spurs the economy and draws money to the stock market. Unfortunately for rate shoppers, that kind of stock market growth happens at the expense of the bond market which is where mortgage rates are made. Good jobs data usually means higher mortgage rates.
Also, job growth can lead to higher home prices. This is because working homeowners are less likely to default on a mortgage versus non-working homeowners. In this way, job growth helps hold foreclosures to a minimum which, in turn, suppresses the housing supply. Less supply means higher prices for home buyers. Mortgage rates are idling this morning in advance of tomorrow’s data. If you’re shopping for a mortgage rate, the prudent play may be to lock your rate before the jobs data is released. A jobs figure that’s higher than the 13,000 expected could cause rate to rise sharply.
The Pending Home Sales Index rose slightly in December, climbing 1 percent from November. A Pending Home Sale is a home that is under contract to sell, but not yet sold. It’s a figure compiled by the National Association of Realtors® using sales data from over 100 regional listing services and more than 60 large brokerages around the country. Because each pending sale is a true measure of sales activity, the Pending Home Sales Index is purported to be the most reliable forward-looking indicator for housing. Recent data supports this hypothesis.
After Pending Home Sales plunged 16 percent in November, Existing Home Sales fell by 17 percent in December. Based on the most recent Pending Sales Index, therefore, we can expect January’s closed sales to be similarly level. For home buyers in Lodi , this is all a bit of good news. Home prices are based on the supply-and-demand balance that exists between buyers and sellers. When buyers outnumber sellers, like they did through most of 2009, home supplies dip and, in fact, the national home inventory nearly halved during the 12 months ending November 2009.
With fewer homes for sale, multiple-offer situations were almost commonplace and home values rose as result. Activity has since slowed, however, and fewer buyers are in today’s market. The supply-and-demand equation has shifted back some. In December, home supplies rose for the first time in 7 months and January will likely show the same. The net result: Home buyers have more homes from which to choose and that can create negotiation leverage for better prices and better concessions. With mortgage rates still low and a looming deadline on the homebuyer’s tax credit, market activity should be strong between now and April. Take your time and bid right. And when you’re ready, be ready. The best deals likely won’t last.
Pending home sales have leveled from a market swing driven by response to the home buyer tax credit, according to the National Association of Realtors®.
A “Short Sale” is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff. By way of example, a Short Sale may be appropriate for a Lodi home seller whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000. Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.
Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan. Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides. For this reason, Short Sales are sometimes considered “the economical alternative” to default.
The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start. And sellers should be aware of how a Short Sale on their credit can impact future borrowing. Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 3-5 years depending on the loan program applied for.
In a news-heavy week, mortgage markets improved last week, adding to a 3-week rally. But, given last week’s data and domestic story lines, it’s surprising that rates actually fell.
The Federal Reserve said the economy continues to strengthen
Usually, events like these draw money away from the bond markets and into the stock markets and Wall Street preps for better corporate earnings. The movement pressures mortgage rates to rise. Last week, however, different stories trumped the headlines including a report from Standard & Poor’s that said U.K. banks are no longer counted among the world’s most stable. This research, in particular, triggered a flight-to-quality among investors that pumped the U.S. dollar and sparked new demand for mortgage bonds. It’s one reason why we ended the week on a rally and it just goes to show how unpredictable mortgage rates can be.
This week figures to be a challenge, too. First, we start the week with key inflation data. When inflation runs hot, it’s usually bad for mortgage rates. Inflation is expected to be tame, however — a point the Fed made several times in its press release last week. That said, inflation data is closely watched by markets and can make a big impact on rates.
Then, on Wednesday, ADP releases its private sector job report. The ADP data is a precursor to the government’s own Non-Farm Payrolls report which is due to hit Friday. ADP is expected to show a net loss of roughly 85,000 jobs. Depending on where the actual numbers comes in, mortgage rates could wiggle a bit. If the ADP report shows much fewer than 85,000 jobs lost, expect mortgage rates to rise. The same is true for Friday’s job report. A miss on expectations will cause mortgage to ratchet higher.
Since peaking on the last day of December, mortgage rates took a slow, steady descent through January. They’ve have taken back close to two-thirds of December’s overall losses. This week, rates could fall some more, or they could bounce back up. The most prudent time to lock would be prior to Tuesday’s closing. After that, the respective jobs reports will take over and rates could go either way with force.
Reporting on a two-month lag, the government said home values rose 0.7 percent in November. National home prices are at their highest point since February 2009. Before we look too much into the FHFA’s Home Price Index, it’s important that we’re cognizant of its shortcomings; the most important of which is its lack of real-time reporting.
According to the National Association of Realtors™, 80% of purchases close within 60 days. As a result, because of its two-month delay, the Home Price Index report actually trails today’s market data by an entire sales cycle. This is one reason why home values appear to be rising even while new data shows that both Existing Home Sales and New Home Sales fell flat last month. The home valuation report is using data from November; the sales reports are using data from December.
The Home Price Index is a trailing indicator and next month, as the Spring Market gets underway, the government will be reporting data from the holidays. The same is true for the Case-Shiller Index. It, too, operates on a 2-month lag. All of that said, however, long-term trends do matter in housing and the Home Price Index has shown consistent improvement over the last 10 months. In many markets, home sales are up, home supplies are down, and values have increased. This trend should continue into the early part of 2010, at least. If you’re wondering whether now is a good time to buy a home in Modesto , consider low prices, cheap mortgages and an available tax credit as three good incentives. By May, none of them will likely be available.
The REALTORS® Relief Foundation of the National Association of Realtors® is contributing $550,000 to the relief of victims of the Haiti earthquake, and is calling upon its 1.2 million members to help.
