Mortgage applications up 5.5%, as fear of rising rates triggers homebuying surge

 

A postelection spike in mortgage rates may have scared potential homebuyers enough to push them off the fence and into a contract before rates move even higher.

A rush on home-purchase mortgages fueled application totals to a 5.5 percent gain on a seasonally adjusted basis last week versus the previous week, according to the Mortgage Bankers Association. Volume was nearly 10 percent higher than the same week one year ago.

Homebuyers were entirely behind the increase, with applications to purchase a home jumping 19 percent on the week, seasonally adjusted. Purchase volume had been weak prior to the election, even though mortgage rates were near historic lows. It is now 11 percent higher than a year ago.

Existing home sales near 10-year high in September

Existing home sales near 10-year high in September  

“The increase in purchase activity was driven by borrowers seeking larger loans, with applications for purchase loans above $417,000 increasing 16.8 percent for the week,” said Michael Frantantoni, MBA’s chief economist. “This change led to the average purchase application loan amount reaching a new record of $310,000. One factor that likely contributed to this boom in jumbo purchase applications is that the jumbo rate is now 12 basis points below the conforming rate for a 30-year fixed rate loan. This is the widest spread between these rates since March 2016.”

The spread is able to widen because banks mostly hold jumbo loans on their own balance sheets; conforming loans are sold to Fannie Mae, Freddie Mac and Ginnie Mae, where they are securitized.

“Banks adjust jumbo rates more slowly, because they’re not directly tied to actively traded securities,” said Matthew Graham, chief operating officer of Mortgage News Daily.

The average contract interest rate for 30-year fixed mortgages with conforming loan balances ($417,000 or less) increased to its highest level since January, 4.16 percent, from 3.95 percent, with points unchanged at 0.39 (including the origination fee) for 80 percent loan-to-value-ration loans. The average rate for jumbo balances, in comparison, was 4.04 percent.

A realtor showing a house in Park Ridge, Illinois.

Getty Images
A realtor showing a house in Park Ridge, Illinois.

“Mortgage rates have continued to move higher in the postelection period, as investors worldwide are looking for increases in growth and inflation,” Fratantoni said.

Mortgage applications to refinance a home loan, which are highly sensitive to rates, continued to drop, down 3 percent for the week, seasonally adjusted. Refinance volume is still about 9 percent higher than one year ago, when rates were slightly higher.

There is a theory that when mortgage rates move dramatically higher, buyers who were halfheartedly in the market get nervous and sign contracts, afraid they will be priced out by even higher rates. This is usually a very short-term effect and has yet to be proven decisively.

Inventory shortages ease

Realtor.com data shows 4.3 percent growth in listings from May to June

Teke Wiggin Staff Writer

Inventory shortages that constrained home sales this spring are beginning to ease, with the number of homes listed for sale trending upwards in June, according to realtor.com data, The Wall Street Journal reports.

The total number of listings rose by 4.3 percent from May to June, to 1.9 million homes. While that’s down by 7.3 percent from the same time a year ago, inventory was off 18.6 percent year over year in February, the newspaper said.

Real estate industry observers have speculated that home price gains might spur more homeowners to put their properties up for sale — and for builders to break ground on more new homes.

With the latest CoreLogic Home Price index showing a 12.2 percent year-over-year gain in home prices in May, the recent uptick in listings — though bolstered by a normal seasonal increase — suggests that these market reactions may be starting to play out.

“No one wants to sell at the bottom, but prices have now been rising for more than a year and by more than 30 percent in some markets — triggering some homeowners to lock in those gains, including those who have been underwater,” said Jed Kolko, chief economist at listing portal Trulia.

But while home value appreciation may be coaxing some to sell, National Association of Realtors Chief Economist Lawrence Yun said in a statement last month that growth in home supply will primarily depend on an increase in construction.

“The housing numbers are overwhelmingly positive,” Yun said about May home sales, which NAR said hit their highest level since November 2009. “However, the number of available homes is unlikely to grow, despite a nice gain in May, unless new home construction ramps up quickly by an additional 50 percent. The home price growth is too fast, and only additional supply from new homebuilding can moderate future price growth.”

A recovery in construction activity is already beginning to take hold, Kolko noted.

“Even though inventory peaks in the summer and drops off later in the year, buyers should have more to choose from next spring and summer than they had this year,” he said.

Courtesy of your Arcadia Real Estate Agent

US housing starts rise

By Christopher S. Rugaber THE ASSOCIATED PRESS

WASHINGTON —  U.S. builders started more homes in February and permits for future construction rose at the fastest pace in 4-1/2 years. The increases point to a housing recovery that is gaining strength.

The Commerce Department said Tuesday that builders broke ground on houses and apartments last month at a seasonally adjusted annual rate of 917,000. That’s up from 910,000 in January. And it’s the second-fastest pace since June 2008, behind December’s rate of 982,000.

Single-family home construction increased to an annual rate of 618,000, the most in 4-1/2 years. Apartment construction also ticked up, to 285,000.

The gains are likely to grow even faster in the coming months. Building permits, a sign of future construction, increased 4.6 percent to 946,000. That was also the most since June 2008, just a few months into the Great Recession.

And the figures for January and December were also revised higher. Overall housing starts have risen 28 percent higher over the past 12 months.

Separately, a private report showed the number of Americans with equity in their homes increased last year. That suggests one of the biggest drags from the housing crisis is easing and could clear the way for more people to put homes on the market.

“The road ahead for housing is still, so far, looking promising,” Jennifer Lee, an economist at BMO Capital Markets, said in a note to clients.

The pair of positive housing reports helped drive early gains on Wall Street. But stocks edged lower later in the day as investors awaited the outcome of a vote on an unpopular bailout plan in the European nation of Cyprus. The Dow Jones industrial average was down 35 points in afternoon trading.

Housing starts jumped in the Northeast and Midwest, while they fell in the South and West. Permits rose in the South, West and Midwest, falling only in the Northeast.

The U.S. housing market is recovering after stagnating for roughly five years. Steady job gains and near-record-low mortgage rates have encouraged more people to buy.

In addition, more people are seeking their own homes after doubling up with friends and relatives in the recession. That’s leading to greater demand for apartments and single-family homes to rent.

Still, the supply of available homes for sale remains low. That has helped push up home prices. They rose nearly 10 percent in January compared with 12 months earlier, according to CoreLogic, the biggest increase in nearly seven years.

Higher prices mean that more Americans have equity in their homes. Last year, about 1.7 million Americans went from owing more on their mortgages than their homes were worth to having some ownership stake, CoreLogic reported Tuesday. That benefits both home owners and the broader economy.

When homeowners have some equity stake, it makes it easier for them to sell or borrow against their homes. Still, 10.4 million households, or 21.5 percent of those with a mortgage, remain “under water,” or owe more on their home than it is worth.

The number of previously occupied homes for sale has fallen to its lowest level in 13 years. And the pace of foreclosures, while still rising in some states, has slowed sharply on a national basis. That means fewer low-priced foreclosed homes are being dumped on the market.

Those trends, and the likelihood of further price gains, have led builders to step up construction. Last year, builders broke ground on the most homes in four years.

Homebuilders have become much more confident over the past year.

Courtesy of your Arcadia Real Estate Agent

How the Student Loan Crisis Drags Down Home Prices

By: 
Image Source | Getty Images

Pity the college graduate, burdened with shocking levels of student-loan debt and looking for a job in the worst employment market in two decades.

But save a little pity for the rest of us.

The staggering amount of outstanding student debt — nearly $1 trillion owed – is beginning to impede the U.S. economy as a whole, a new report from the New York Federal Reserve suggests, chiefly by robbing the housing market of its richest crop of new buyers: young college graduates.

The statistics in the report are dismaying in themselves. With the number of borrowers approaching 40 million nationally, including more than 40 percent of 25-year-olds, the average balance on their loans has risen to $25,000. About 6.7 million of all student borrowers, or 17 percent, are delinquent on their payments three months or more.

“Delinquent student loan borrowers have a very difficult time accessing credit and the share of those borrowers is greater today than in the past,” said Donghoon Lee, a senior economist for the New York Fed and one of the authors of the report.

(Read MoreStudent Debt Climbs as Credit Gets Tighter)

For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers are no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.

The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.

“These are the people you’d expect to buy big houses,” said student loan expert Heather Jarvis. “They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already.”

 

For years, economists and student advocates warned that the greater debt load would have an adverse impact on graduates’ borrowing power. Now the statistical evidence is mounting. Last month, a Pew Research Center survey found that the share of millennials who own their homes had fallen from 40 percent to 34 percent during the recession, with a similar decline in residential debt.

Everyone has had a harder time qualifying for a mortgage since credit standards tightened in 2008, of course. And it could be that younger people suddenly prefer renting (or living at home). But by looking at mortgage originations, the New York Fed’s report ties college graduates’ lack of home ownership more directly to borrowing woes.

The implications for the housing market are serious. The number of first-time homebuyers, more than half of whom are aged 25 to 34, has been shrinking since the recession struck, and young buyers now make up their smallest share of the housing market in more than a decade.

(Read MoreFour Ways to Make Your Tax Refund Pay You Back)

In February, the Consumer Financial Protection Bureau asked private lenders to suggest options for relief of student loan borrowers. “They are increasingly concerned about the effect of student debt on household formation to see if there’s anything they can do to thaw the marketplace,” said Mark Kantrowitz, publisher of the financial aid website Finaid.com.

But existing efforts to prevent delinquency on federally backed loans — such as basing the size of borrowers’ payments on their income — have sometimes made getting a mortgage more difficult. “It confuses the mortgage process,” said Jarvis. “Income-driven programs do help them afford a home and ought to make them more creditworthy, but they have not communicated well.”

The best fix for everyone would be a faster growing economy, which would provide jobs and higher incomes to those who have borrowed. Until then, Jarvis sees the average college grads’ situation as a Catch-22. “If you don’t prioritize your student loan debt you won’t be able to get credit in the future,” she said, “and if you do pay it, you won’t be able to afford anything else.”

Courtesy of your Arcadia Real Estate Agent

U.S. Homeowners Are Repeating Their Mistakes

U.S. Homeowners Are Repeating Their MistakesPhoto illustration by 731: Hand: Getty Images

Global Economics

By Brendan Greeley on February 14, 2013

If there’s one thing Americans should have learned from the recession, it’s the importance of diversifying risk. Middle-class households had too much of their net worth tied up in their homes and were too exposed to stocks through 401(k)s and other investments.

Despite the hit many Americans took, there’s little sign they’ve changed their dependence on homes as the mainstay of their wealth. Last year, Christian Weller, a professor at the University of Massachusetts, looked at Federal Reserve data for households run by those over 50. The number of families with what Weller calls “very high risk exposure”—a low wealth-to-income ratio, more than three-quarters of their assets in housing or stocks, and debt greater than a quarter of their assets—had almost doubled between 1989 and 2010, to 18 percent. That number didn’t decline during the deleveraging years from 2007 to 2010; its growth just slowed to a crawl.

The Fed will conduct a new wealth survey in 2013, but don’t look for a rational rebalancing. The same pressures that drove families to save less before the recession are still in place: low income growth, low interest rates, and high costs for health care, energy, and education. Families have been borrowing less since 2007, but the rate of the decline has slowed. As soon as banks start lending again, Weller says, people will put their money back into housing. “The trends look like they’re on autopilot,” he says. “They don’t suggest that people properly manage their risk.”

In a 2012 paper for the National Bureau of Economic Research, economist Edward Wolff concluded that from 2007 to 2010, the median American household lost 47 percent of its wealth. Average wealth—a number that includes the richest Americans—declined only 18 percent. Houses make up a smaller share of the wealth of a rich family. The wealthy also benefit from better financial advice, Weller says.

A home is what economists call a consumption good; you have to live somewhere. It’s also a store of wealth. Unlike other assets, you can’t buy a portion of a house. “You want to consume a big home,” says Sebastien Betermier, an assistant professor of finance at Desautels Faculty of Management at McGill University. “But if you want to buy that home, it’s a huge investment—probably more than you really want.” Betermier, who studies consumers’ financial decisions, says homeownership makes it harder to diversify risk. Since 1983, for the richest 20 percent of U.S. households, the principal residence as a share of net worth has been around 30 percent. For the next 60 percent—most of us—housing has risen from 62 percent to 67 percent of total wealth.

To compound the problem, home equity dropped for this middle group even as home values rose. Rising house values, low interest rates, and easy refinancing encouraged property owners to take out home equity loans. And Wolff’s analysis shows the middle class reducing their cash cushion from 21 percent of assets, starting in the early 1980s, to 8 percent just before the recession. Cash is bad luck insurance; you pay a premium because you don’t earn a return on it, but it’s available in case of an emergency. Americans borrowed against their homes, spent the cash, and were left only with risk.

How can the middle class manage risk better? Financial education would help. Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, is alarmed at how few people understand basic principles. “What we do know is that people who are more financially literate … do accumulate more wealth,” she says.

The other option is for banks to devise ways to reduce housing risk. When Weller worked as a banker in Germany in the 1980s, the bank would set up a savings account with automatic deposit for every mortgage customer. That way, the client would build up a cash reserve to pay the mortgage in a bad month. This remains a common practice in Germany, where banks hold on to their mortgages rather than securitize and sell them.

Weller, Betermier, and Mitchell agree that the mortgage interest deduction contributes to the problem, as it encourages families to move their assets into housing. “When people think about renting vs. buying, the tax subsidy looms large,” says Wharton’s Mitchell. Weller endorses an approach suggested by Senator Barack Obama in 2008: Turn the deduction, which lowers taxable income, into a flat credit, which cuts your tax bill by a fixed amount. That would lead to slower growth in house prices, says Weller, since the credit wouldn’t rise even if people took on a bigger mortgage to buy a more expensive house. As the price of housing climbs more slowly, the shift of a family’s savings into housing would.

In 1999, Robert Shiller of Yale University proposed a way to hedge house values. New owners would buy an option with their mortgage, tied to an index of house prices (such as the one developed by Shiller and Karl Case). The option would function as home value insurance. But “when you buy insurance and you don’t die,” says Shiller, “you think how I spent all this money and got nothing. It takes sophistication.” The problem with his idea, he says, as with similar approaches by the Bank of Scotland and Bear Stearns, was that house prices were rising. People don’t buy insurance for a risk they don’t see.

This leaves Shiller, like Wharton’s Mitchell, pushing for education. At the Obama Treasury several years ago, he suggested the White House hold conferences on housing risk. “They would invite top financial organizations,” he says, “and ask them ‘What are you doing about this?’ ” At the time, Treasury and the banks had more pressing things to do. The federal government could also resort to regulation. Shiller points to the example of Franklin D. Roosevelt, who mandated that homeowners buy fire insurance with their mortgages. “I think it could be expanded to home value insurance,” he says.

The best remedy of all would be a higher savings rate. Mitchell tells her daughters, who are in their twenties, to hold off buying a house and save 25 percent of what they earn. But, she says, “They don’t find this very helpful.”

 

The bottom line: Americans still have too much of their net worth tied up in their homes. There are limited options to encourage diversification.

 

Courtesy of your Arcadia Real Estate Agent

11 Breakfast In Bed Ideas for Valentine’s Day

Valentine’s Day is coming and at Coldwell Banker we definitely believe in breakfast in bed.

Whether you love or despise Valentine’s day truth is breakfast is “the most important” meal of the day, so why not make breakfast on February 14th  special for a loved one in your life. Here are 11 super sweet ideas:

Cocoa Kissed Red Velvet Pancakes 

redvelvetpancakes 300x300 11 Breakfast In Bed Ideas for Valentines Day

Egg in the Basket 

eggsinabasket 300x280 11 Breakfast In Bed Ideas for Valentines Day

Chocolate Chip Scones 

scones 300x198 11 Breakfast In Bed Ideas for Valentines Day

Perfect Heart-Shaped Pancakes 

heartshapedpancakes 300x297 11 Breakfast In Bed Ideas for Valentines Day

Healthy Whole Wheat Cranberry Applesauce Muffins 

muffins 199x300 11 Breakfast In Bed Ideas for Valentines Day

Red Velvet Crepes 

crepe 300x199 11 Breakfast In Bed Ideas for Valentines Day

Valentine Smoothie (Strawberry Banana) 

smoothie 300x292 11 Breakfast In Bed Ideas for Valentines Day

Heart Cinnamon Rolls 

cinnamon 200x300 11 Breakfast In Bed Ideas for Valentines Day

Heart Shaped French Toast

frenchtoast 290x300 11 Breakfast In Bed Ideas for Valentines Day

Hot Chocolate with Marshmallow Hearts 

hot chocolate 11 Breakfast In Bed Ideas for Valentines Day

…and finally what says I Love You more than Heart Shaped Bacon?!

bacon 200x300 11 Breakfast In Bed Ideas for Valentines Day

 

Courtesy of your Arcadia Real Estate Agent