Biggest home price rise since the bubble is latest sign of housing recovery – Mar. 26, 2013

Home prices continued their recovery, rising 8.1% in January, although a separate report showed a slight slowdown in new-home sales.

The S&P Case-Shiller index, which tracks the 20 largest markets in the nation, showed the biggest year-over-year gain in prices since June 2006.

“This marks the highest increase since the housing bubble burst,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

In a separate government report Tuesday, new homes sold at a 411,000 annual rate in February, down nearly 5% from the January sales pace but up 12% from year-earlier levels. The typical price of a new home sold in the month was $246,800, up about 3% from both the January and a year earlier.

Joseph LaVorgna, chief U.S. economist for Deutsche Bank, said that bad weather in February could be partly responsible for the slowdown in sales. But he said market fundamentals suggest that the market for new-home sales should remain strong.

“Despite the pullback in sales in February, the uptrend in housing remains clearly intact,” he said. He is forecasting even stronger sales in the second half of this year.

The Case-Shiller report shows the recovery in home prices is widespread. All 20 markets posted a year-over-year gain, and the pace of increase picked up in every market except Detroit.

Some of the markets hurt the most by the bursting of the housing bubble have enjoyed the biggest gains, led by a 23% rise in Phoenix. Prices were also up more than 10% in San Francisco, Las Vegas, Detroit, Atlanta, Minneapolis, Los Angeles and Miami, all markets that had been hit hard by foreclosures.

New York posted the smallest rise, up only 0.7%.

Even with the recent rise in home prices, the overall index is down 28.4% from the 2006 peak.  But experts say they see a lot of strength in the current market.

“The market still has a long way to go nationally, but the healing process — and a return to a normalized housing market — is definitely well underway,” said Jim Baird, chief investment officer for Plante Moran Financial Advisors.

Home prices have been helped in recent months by a number of factors, including tight inventory of homes available for sale, near record-low mortgage rates and a drop in homes in foreclosure. A decline in unemployment is also helping the housing recovery.

The housing recovery itself is helping support overall economic growth, as builders scramble to hire workers to meet the renewed demand. The lift goes beyond the impact of increased construction on the economy, as the rise in home prices lifts household wealth.

Rising home prices also reduce the number of people owing more on their mortgages than their homes are worth. That, in turn, can help them to refinance those loans at a lower rate, freeing up money to spend on other goods and services. To top of page

via Biggest home price rise since the bubble is latest sign of housing recovery – Mar. 26, 2013.

Will Home Improvement Add Value To My Home?

Determining whether a home improvement will add value to your home can be tricky. There are many factors to consider. Some factors are tangible like the cost of making the improvement. While other factors are less tangible and harder to quantify, like the improved quality of life the home improvement brings you and your family.

I found a great online tool which allows you or your clients to easily compare different home improvement projects and see which projects offer the highest payback.  Based on this information, the top 3 remodeling projects with the highest return in the Chicago region were:

  1. Entry Door Replacement (steel) – 82.3% cost recouped
  2. Fiber Cement Siding Replacement – 78.5%
  3. Window Replacement (vinyl) – 76.5%

Mid-Range Home Improvement


Upscale Remodel


I hope this information is helpful. If you’re now thinking “how am I going to pay for all this?” give me a call and we can discuss refinancing your mortgage to either take cash out or lower the rate and free up some cash on a monthly basis. I look forward to speaking with you soon!

What’s Ahead for This Week’s Mortgage Rates rates had a terrible week last week in reaction to much stronger than expected job numbers.  The Department of Labor’s Non-farm Payrolls report for February surpassed expectations with 236,000 new jobs reported against expectations of 170,000 new jobs expected by Wall Street.

This stronger than expected showing in jobs numbers points to a stronger economy and may lead to less pressure to hold mortgage interest rates lower.  The Unemployment Report for February also provided good news as February’s reading dropped to 7.7 percent from January’s unemployment rate of 7.9 percent.

While good news, it’s important to bear in mind that the Fed has established and unemployment rate of 6.5 percent as a benchmark for ceasing its monetary stimulus program.  Now if you drill down deeper you will see some indications that the number is not as strong as it appears (300,000 people leaving the work force for example).

Here is a chart of the MBS market for the past month.  Friday’s close was the lowest we’ve seen since August 16thMBS Chart

Busy Week In Financial News

This week has a busy calendar of scheduled economic news; here are a few highlights:

  • Tuesday, Wednesday and Thursday: Treasury Auctions
  • Wednesday: Retail Sales, and Retail Sales without Auto Sales
  • Thursday: Producers Price Index (PPI) and Core PPI (PPI without volatile food and energy sectors)
  • Thursday: Weekly Jobless Claims, Consumer Price Index (CPI) and Core CPI (without food and energy sectors)
  • Friday: Consumer Sentiment

It will be interesting to see how or if Consumer Sentiment reacts to recent signs supporting progress toward economic recovery.

Even with the increase in rates we’ve seen over the past 2 months rates are still fantastic.  Don’t miss this chance to take advantage of these historic low rates.

What Motivates Underwater Borrowers to Refinance?

In June 2012, Fannie Mae’s Economic and Strategic Research (ESR) team explored the benefits of refinancing for American households and the U.S. economy (see FM Commentary: Refinancing Helps Many Households Restore Their Financial Health). Between 2009 and November 2012, Fannie Mae refinanced more than 8.9 million mortgages, including nearly 1.2 million loans refinanced through the Home Affordable Refinance Program (HARP).1 HARP was created to help borrowers refinance despite having little or negative equity in their homes due to a decline in their home value. In late 2011, HARP guidelines were expanded to remove many of the barriers affecting borrowers who are current on their mortgage but are deeply underwater.

In the ESR piece cited above, Orawin Velz writes, “refinancing lowers their monthly mortgage payment, freeing up cash that can be used for other goods and services.” To put this into context, borrowers who refinance through HARP have an average weekly savings of approximately $83.2 According to the Bureau of Labor Statistics, this savings would pay for the average household’s weekly clothing costs or about 50 percent of a household’s weekly food consumption.3

Despite the potential financial benefit from refinancing, hundreds of thousands of potentially eligible underwater borrowers have yet to take advantage of the HARP program. This begs the question: why?

To understand underwater borrower motivations and potential barriers to refinancing, the ESR team conducted a survey of HARP-eligible borrowers who have loans held by Fannie Mae, as of July 2012. Among the 2,400 respondents, half of those surveyed have already refinanced through the HARP. The other half have not refinanced through HARP, but would meet the eligibility criteria to do so according to our estimation. For each refinanced and not-refinanced subpopulation, the sample is evenly distributed across three loan-to-value (LTV) categories: 80-105 percent, 105-125 percent, and 125+ percent.

The survey revealed the following findings:

Misperceptions and distrust hamper borrowers: Many HARP-eligible borrowers who have yet to refinance do not fully understand the program’s terms. For example, 38 percent of deeply underwater borrowers (LTVs of 125 percent or greater) said that they would need to pay additional money to refinance because their home has lost value. Twenty-eight percent of deeply underwater borrowers also questioned whether they would qualify at all for a refinance.

Additionally, nearly a quarter of those who have yet to refinance said that they have “received too many mailings or offers to take any seriously.” Twenty-two percent of borrowers who have yet to refinance said that they “do not trust the lender that contacted [them].”

While borrowers are motivated by reducing their monthly payments, concerns about closing costs and extending terms are barriers to refinancing: Borrowers who have refinanced cite the ability to reduce monthly payments as the primary reason for refinancing. At the same time, those who have yet to refinance cite concerns regarding closing costs and the fact they do not want to take out another 30-year loan as the primary barriers to refinancing.

Borrowers look to mortgage servicers to inform their decision on refinancing:It is clear that a servicer is an important conduit of information and can play a meaningful role in a borrower’s decision-making process. The survey shows that borrowers who have refinanced are far more likely to have heard about HARP from their mortgage servicers than those that have not refinanced.

Over the past 12 months, partly due to expanding eligibility rules, we have witnessed a significant increase in HARP volumes. At the same time, many borrowers remain on the sidelines. Our National Housing Survey shows that about 55 percent of homeowners have refinanced the mortgage on their current homes. However, our survey of HARP-eligible borrowers indicates that there are potential barriers and misperceptions that may be overcome to encourage borrowers who have not yet refinanced to explore their options. Overcoming these barriers and misperceptions could benefit households. Importantly, for many borrowers who are currently eligible for refinancing, time may be running out – HARP is scheduled to expire at the end of 2013.

Tom Seidenstein

Vice President for Financial Markets and Policy Research

Economic & Strategic Research

via Commentary – Seidenstein, March 6th 2013 | Fannie Mae.

Mortgage Rates And APR : How To Get The Best, Low Mortgage Rate

Truth-In-Lending APR Disclosure

It’s a myth that you can shop for a mortgages using Annual Percentage Rate (APR) calculations. You can’t shop for loans by APR.

No matter what your loan type — FHA, conventional loans, VA, USDA or jumbo — shopping by APR makes it less likely that you’ll choose “the best deal”. APR is among the most easily manipulated numbers in the mortgage business. Of course, some lenders count on you not knowing that.

What Is “APR”?

More commonly called APR, Annual Percentage Rate is a government-concocted math formula. It’s meant to measure the “true cost” of a loan, from the date of closing to the date of payoff.

APR is roughly measured by taking the original loan size, accounting for closing costs and prepaid items, then estimating how much will have to be paid over 30 years to pay off the loan in full.

APR answers the question, “If I borrow this much money, and it costs me this much to pay off my loan, what would my theoretical mortgage rate have been?”

APR is printed in the top-left corner of the Federal Truth-In-Lending Disclosure, as shown above.

Loan officers are required to disclose a mortgage’s particular APR every time they make a rate quote. This is federal law, meant for consumer protection. By showing APR along with every rate quote, it’s believed that customers will be better informed and can make better loan choices.

In some cases, this is true. In many cases, it is not.

APR is not the “apples-to-apples” comparison tool it’s advertised to be. This is because the loan with the lowest APR isn’t always the loan that’s best for you.

APR Can’t Be Your “Apples-To-Apples” Tool

Banks and lenders love to promote their “low APR loans” — especially online. In fact, most mortgage marketplaces sort loans by APR by default. This means that the loans with the lowest APR will show up first on your list of approved mortgage lenders.

Unfortunately, getting a low APR doesn’t translate to getting a “good deal”. This is because the APR formula is flawed.

Calculating for APR requires a lender to makes serious assumptions about the future and, as we all know, predicting the future is impossible.

For example, here are three egregious assumptions that the APR formula makes about your loan:

  • The APR formula assumes that you will hold your loan for 30 years
  • The APR formula assumes that you will never make an extra principal payment
  • The APR formula assumes that you will never refinance or sell your home

In addition, for loans with mortgage insurance, a category including conventional loans, FHA loans, USDA loans and others, the APR formula is forced to assume a specific date upon which your mortgage insurance “goes away”. This is next to impossible.

It’s for these reasons that Annual Percentage Rate fails.

As another example, when comparing loans with discount points to loans without discount points, a loan with discount points will often boast a lower APR — even though the loan may not be “cheaper”, necessarily. Online lenders know this and it’s why their “deals” can look great online, but not so great once the paperwork gets signed.

Shopping by APR can be the worst way to shop for a loan — your loan may front-load with fees.

APR Assumes You’ll Never Sell, Never Refinance

Your loan’s APR can be negatively affected by other assumptions, too. One such way is with respect to loan fees.

When you ask for an APR from a lender, at the start of your process, mortgage loan costs are often unknown. However, third-party loan costs such as appraisal and title services are required to be estimated. This is one reason why you get a Good Faith Estimate.

There’s a reason it’s not called the Good Faith Iron-Clad Guarantee. Banks don’t know each fee to the penny at the start and when a banks estimate fees, Annual Percentage Rate becomes an estimate, too.

Another APR estimate is tied to adjustable-rate mortgages (ARMs).

The government’s APR formula tells banks to make assumptions about how your loan will adjust over its 30-year term. Banks are told to estimate how far rates might rise over 30 years, and how far they might fall. The estimated payments of an ARM affect the APR.

When two different banks apply two different schedules of adjustment, the result will be two different APRs. Despite equal mortgage rates and fees, the loan with the most aggressive ARM adjustment will show the lowest APR.

This, too, is misdirecting.

Compares Apples Or Oranges, But Not Both

The important thing to remember is that APR is not the metric for comparing mortgages — it’s merely a metric. The better way to compare two mortgage rate offers is to look at the mortgage rates as compared to the fees. APR should have nothing to do with it.

Shop for a mortgage rate, and compare loan fees at that rate. Or, shop for zero closing costs and compare mortgage rates on that plan. You can’t do both at once and can’t shop for a mortgage by APR.

Start with a fresh quote and see how today’s rates fit your budget. Ignore the APR and shop with smarts.

Click here to see more from Dan Green

What’s Ahead for Mortgage Rates this Week

Mortgage-backed securities (MBS) improved last week, helping mortgage rates to drop for30-year fixed rate mortgage rate falls to 3.51% with 0.8 discount points, on average the first time in six weeks.

The FNMA 3.0% coupon and the GNMA 3.0% coupon both climbed, lowering conforming mortgage rates and FHA mortgage rates, respectively.

Jumbo mortgage rates dropped, too, continuing a multi-week winning streak for loans exceeding $625,500.

This week, however, with February’s jobs data due for release and the federal sequester underway, mortgage rates may reverse higher. The market looks ripe for a rate lock.

Freddie Mac Survey : 30-Year Fixed At 3.51%

Conforming mortgage rates dropped last week. Freddie Mac’s weekly survey of 125 banks showed the average 30-year fixed rate mortgage rates easing 0.05 percentage points to 3.51% nationwide for mortgage applicants willing to pay 0.8 discount points plus a full set of closing costs.

Last week’s drop in rates was the first since mid-January. In the six weeks since, rates have climbed 1/8 percent and the required number of discount points has climbed by one-tenth of one percent.

FHA mortgage rates dropped last week, too.

This Week : February Jobs Report

Last week, the Census Bureau and the National Association of REALTORS® released the January New Homes Sales report and Pending Home Sales Index, respectively. Both releases show that the 2012 housing market finished strong, and that the 2013 market is powering ahead.

In addition, home prices were shown to be rising faster than expected nationwide. However, the week’s biggest story will be the Friday release of February’s Non-Farm Payrolls report.

Jobs are paramount to the U.S. economic recovery and more than 4.3 million jobs have been added since October 2010. During that same time frame, the national jobless rate has dropped to 7.9%.

For February, Wall Street is expecting 195,000 net new jobs created and a drop in the Unemployment Rate to 7.6%. Should job growth be positive, it would mark the 29th straight month that the jobs economy has expanded — a statistic closely watched by Wall Street.

Jobs growth begets more job growth which boosts both consumer and business spending. As profits increase, stocks win favor over “safer” investments, including mortgage-backed bonds, causing mortgage rates to rise.

An especially strong February jobs report would likely send rates soaring. A weak result, however, may be ignored. This is one reason why there’s more risk in floating a mortgage rate this week than locking one. If you’re shopping for a home loan, consider locking quickly.

The jobs report hits Friday at 8:30 AM ET.