Mortgage Rates Are At A Three-year Low

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This week mortgage interest rates have hit historical marks by reaching three-year lows. This significant marker of low rates comes just two months after The Federal Reserve announced rates have fallen and are not anticipated to rise again for the remainder of 2019. Low rates in conjunction with a surplus of home sales, the housing market is expected to continue to improve and show favorable conditions. Not only are the lower rates good news for potential homebuyers that are looking to enter into the market, but also continues to open opportunities to homeowners that are looking to refinance.

Market Update: The Federal Reserve Holds Rates

The Fed BuildingImage Source: Investopedia

No news is good news for the mortgage industry right now. The Federal Reserve announced; rates are holding steady! This recent announcement comes just 2 months after the initial Fed meeting that resulted in the decision to drop rates and is anticipated to keep them low for the remainder of 2019. Weaker inflation and labor economic data has also aided in keeping rates low. With the excitement of rates remaining steady and purchase season in full swing, now would be an optimal time to purchase a new home. The Federal Reserve holding mortgage rates provides optimism surrounding refinancing to lower mortgage payments, removing or lowering mortgage insurance and pulling cash out for Spring home projects.

Baby Boomers: Looking For Dream Retirement Homes

A lot of baby Boomers are retiring and looking to buy their retirement homes. According to the National Association of Home Builders, builder confidence has reached 76 for the 55 and older market. With the recent decline in mortgage rates, this has been particularly favorable for the demand on 55 and older housing. There could be slight challenges with the new demand of retirement homes being built for Baby Boomers. Rising construction costs and a lack of skilled labor, will present problems for builders, which could rev up cost.

For the last several weeks Mortgage Applications have been on the decline but that’s all changing. Within this past week, applications are on the rise and purchase season is picking back up. According to the Mortgage Bankers Associations, there has been a 2.7% increase compared with the previous week. Majority of new applications were from purchases. The average loan size for purchases has elevated slightly from $332,000 to $335.600.

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Don’t forget before purchasing a home to take all cost into consideration, especially property tax. While property taxes range in price, they are calculated on the area you live in. According to ATTOM data solutions, property taxes have gone up on average. One of many reasons why property taxes are rising, is due to changes in the cost of government and the level funded by State taxes. Another factor in the rise of property taxes is that State and local governments are receiving less from the federal government and need to pay for all services provided by residents.

Down payments can feel like a looming cost and be the greatest financial barrier to home ownership according to research. However, there is a common misconception about the amount of money new homeowners need to put down. According to The Mortgage Report, new homeowners do not have to put much down at all. Most buyers put down only 10% in comparison to the 20% that many people think they need.

Going Digital: Zillow offers 3D home tours

New technology is on the horizon that will make it easier to attend home tours. Zillow has created a new 3D virtual tour, that is available for consumers. Potential buyers will never have to leave their home to attend open houses again. It’s a free resource that real estate professionals can use to help them serve more clients at a lower cost.

Home prices seemed to be higher toward the beginning of the year, which has increased the Housing Price Index according to the Federal Housing Finance Agency. The FHFA monthly HPI is based off the home sale prices from Fannie Mae and Freddie Mac. The HPI excludes cash sales and jumbo loans. Across the nine census divisions, the East South-Central Division saw a 1.4% rise in February. However, the Middle Atlantic Division didn’t experience any growth at all, as there was an appreciation decline of 1.2%.

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Homeowners could be tapping into a nice amount of pent-up wealth in their homes. In the last quarter of 2018, US homeowners had a collective amount of attainable equity, close to 5.7 trillion dollars. According to Corelogic, at the end of 2018, homeowners only collected nearly 10,000 in equity. Many Americans are hesitant to do cash-out refinances as rates are said to play a major role. With rates taking a nudge upwards, this has a negative effect on home-owners.

New home sales are on the rise. According to Housing Wire, home sales rise 3% above 2018 levels. The momentum of home sales growth is credited to mortgage rates staying relatively low. The Census Bureau and The Department of Housing and Urban Development analysis shows, new home sales have increased 4.5% in March from February’s revised rate of 662,000.

According to the Urban Institute, the government had made mortgage credits available in the last several months in comparison to the last 10 years. The HCAI rose at the end of 2018, which means lenders are willing to tolerate defaults and take more risks. All of which makes a good environment for loan approval.

 

The American Dream and the looming recession

Refinances are finally making a comeback after last year’s drought. Black Knight revealed that an estimated 3.27 million homeowners could benefit from refinancing. This is an increase year-over-year by 16% from 2018. This means a jump of candidates around 75%, with rates at a current 10-month low.

Various areas throughout the country give low-income families a chance at the American Dream. Being a homeowner gives people a chance to benefit from their communities, as well as gain wealth from their home equity. With metros becoming more expensive and having a lack of affordable starter homes, low-income residents aren’t typically able to share in the prosperity of home ownership

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. To escape the high costs of homes, buyers are looking to relocate to inland markets.

With perks such as no down payment, it’s no surprise that VA loans have become increasingly more popular for first-time home-buyers. Benefits such as no mortgage insurance and strong loan servicing protections accompany this loan as well. Both prime and non-prime home-buyers using VA loans are reporting less early delinquency rates.

With a confident forecast of 2% economic growth for the next year, JP Morgan Chase chief economist Anthony Chan is dismissing concerns over a looming recession. During the Chicago Agent Magazine’s Accelerate Summit at the Chicago Merchandise Mart last Tuesday, he predicted that while it won’t be as exponential as last year, the economy will still see growth.

Purchase season, who has the power?

Realtor.com just provided data that reveals Millennials are finally ready to dominate the market. In January 2017, Gen X finally gave up its spot at the top for the most new mortgages. Millennials have held this position strong as their share of the mortgage market continues to rise. At the end of 2018 they were responsible for 45% of all new mortgages. However, while they are taking on larger mortgage payments, their down payments are significantly lower. The average for Millennials was only 8.8% while Gen X boasted an 11.9%.

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Roofstock is a real estate platform for buying and selling single-family rental homes. The company just announced that is it introducing a new program that will allow consumers to invest in a share of a single-family rental home without having to act as the landlord. With this new program investors can reap the reward of property ownership without the risk. Roofstock itself will be responsible for the financing, the insurance, property management, asset management, and the leasing. Profits from investment will be price appreciation, along with tax benefits and potential dividends. Investments can start as low as $5000.

According to LendingTree, 86.5% of mortgages borrowers now have a rate under 5% regarding a 30-year fixed. The most common rate offered was a 4.625%, which accounted for 19.2% of borrowers. This is notably below 2018. In 2018 87.3% of purchase mortgages were given a rate under 5%.

Over the past week purchase applications have rose 2% after four consecutive declines. This is also increased 2.5% from last year. With interest rates remaining low, there is certainly incentive for not only purchasing, but for refinancing as well. The refinance index just moved forward 6% from the previous week, while the purchase index moved forward 7%. This is a solid 3% higher than where the index was in 2018.

Lackluster Home Sales and Baby Boomers

In an analysis of 54 metropolitan areas, RE/MAX National Housing Report has conveyed the largest inventory increase in a decade. Although home sales themselves have scaled back by 11% on an annual basis, the increase in inventory has averaged 6% year-over-year. This greatly improves the market as there was a multi-year scarcity of homes for sale. Compared to just last year, January which is typically a slower month for home sales, had an improvement of .5 overall.

Baby Boomers continue to retire in waves without adequate savings to support themselves and their family during their golden years. It is becoming extraordinarily clear that the country is on the brink of a retirement crisis. As health care costs continue to skyrocket and pensions dwindle, Social Security is simply insufficient for the longevity of this generation. This all sounds doom and gloom, until it’s pointed out that many Americans are literally sitting in a pile of cash; their homes. Capitalizing on the equity of one’s home can solve many later in life money issues.

The Department of Housing and Urban Development announced its plan for awarding $10 million in “sweat equity” grants to nonprofit organizations. The funding is sourced from HUD’s Self-Help Home-ownership Opportunity Program. The actual money in combination with the labor from both volunteers and home-buyers will lower the overall cost of home-ownership. A minimum of 50 hours is required for a single ownership household, and the hours are doubled for a household of two. Community service is another requirement for eligibility. During the initial round of grants awarded more than half of the capital, around $5.3 million is going to Habitat for Humanity.

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While inventory is at a decade high, the affordability of homes for sale on the market is at a decade low. With only 56.6% of homes being affordable for the country’s median income, the National Association of Home Builders is calling on policymakers to make some changes. The Chief Economist of the NAHB, Robert Dietz indicates that wage growth is under performing while home appreciation continues to rise.

The U.S. Census Bureau’s most recent American Community Survey reported homeowners are currently spending more money per month than renters in all 50 states. This data was compiled tracking the median housing costs from 2013-2017. Costs such as mortgage payments, home insurance, property taxes and maintenance are making it far more expensive to own a home. However, experts say while renting saves money month to month it will not pay off in the end. Investing in a home can increase the home’s equity and look to put cash back in your pocket.  A mortgage is a major expense, but once it is dropped off the monthly spending homeowners can expect a significant increase in their savings.

Housing Balance.

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Pending Home Sales fell 2.6 percent in October, a disappointing read and a miss. The National Association of Realtors is attributing this decline to the rise in mortgage rates, which really began in October, reducing the pool of eligible homebuyers. Last week we saw a dip in mortgage rates and compared to 18 years ago, rates are still favorable. Back in October 2000, mortgage rates averaged almost 8 percent for a 30-year fixed. What does all this mean? Short-term, experts are having difficulty finding consensus on the housing outlook. Mortgage rates are expected to rise modestly but they don’t know what that translates to for borrowers and homebuyers as it seems many hesitate. Long-term, there’s confidence homebuyers will accept the new norm for mortgage interest rates and continue to buy based on lifestyle and need. The benefit to sales cooling: the inventory of homes for sale is recovering.

Is 2019 the year for balance? That’s what Zillow is predicting as home values begin to slow down and are expected to continue the trend through next year, with mortgage rates expected to keep rising. 2019 should bring a more balanced market among buyers, sellers, and renters. Housing competition will remain strong in the most desirable areas.

The Federal Reserve Minutes from their meeting earlier this month were released yesterday afternoon, showing most Fed members still believe we need 3 more rate hikes, with a December quarter-point rate hike still on deck and expectations for the next one to not be until at least March 2019. While rate hikes are a sign of a healthy economy there is also risk of hiking too early, making December’s possibility of one still debatable.

Earlier this week, we mentioned home renovations are becoming more popular. Here’s some top common-sense tips we have found since:

  • “My dad told me, ‘You can do anything yourself, except foundation, electrical, or plumbing.'” —Kirsten Selvage, homeowner in Ontario, Canada.
  • “It’s cheaper to do it right than it is to do it over.” —Jim Molinelli, architect in Columbia, MD.
  • Renovate with the next buyer in mind but do so long before you sell in order to enjoy the improvements yourself.
  • Over schedule to not feel stressed by lack of time in case any mishaps come up.

Initial Jobless Claims for last week were reported at 234K. While compared to recent months and weeks this is higher than normal, it remains far below that 300K mark highlighting a good, healthy labor market. The ADP and BLS Job Reports are both scheduled for release next week and expectations are 190K and 170K job creations, respectively.

Home Renovations on the Rise.

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The level of New Homes on the market is at the highest since January 2009—almost 10 years! New Home Sales, however, were down almost 9 percent in October, below expectations; though, a decrease in signed contracts on new homes was expected.

Home renovations: the popular solution for those who don’t want to face the homebuying competition or have hesitations with increased home prices. Not to mention, many have secured a very low mortgage interest rate they don’t want to give up by moving. In fact, there’s been about a 30 percent increase in home remodeling projects over the last five years, and unfortunately over 30 percent haven’t set aside the money for such renovations.

Home prices are slowing down and it’s welcomed news. The Case-Shiller Home Price Index, tracking changes in the value of residential Real Estate, showed a 5.5 percent annual gain for the National Index. The Federal Housing Finance Agency (FHFA) Housing Price Index, highlighting home appreciation on single-family housing, rose 0.2 percent in September and showed a 6 percent annual gain. For both these indices, the year over year appreciation rate decreased very slightly (talking .1 or .2 percent). This does not mean home prices overall decreased but rather are rising at a slower rate than they did last year. This is not a negative appreciation but rather a slower positive appreciation. (It’s a good time for cash out refinances before home prices do drop, though; help fund those renovation projects.)

Mortgage Applications for last week were up 5.5 percent, with purchases up 9 percent and refinances up 1 percent.

Over the last 20 years rent prices have more than doubled, going from about $450 in 1998 to over $1000 in the third quarter of 2018; and since 2008, the average rent for a new apartment has increased 28 percent. Over the last 10 years, the average size of a new apartment has decreased 5 percent—paying for less! California apartments have decreased in size by 12 percent. What’s driving this decline in size? Millennials looking to save a penny—they’d rather live in a smaller unit because of rental costs—and construction limitations: cost and space. Building smaller can yield room for more units to be built, increasing profit.

Debt doesn’t love Michigan—or maybe it does? Two Michigan cities, Ann Arbor and Lansing, made the Cities Where Home Buyers Have the Least Debt list with the former ranking at number 2! The median mortgage borrower’s debt-to-income (DTI) ratio is only 33.7 percent for the city. Honolulu held the highest DTI at 45.1 percent.

Older homeowners love Florida, with the state dominating all of the top 5 Metros with the Highest Average Homeowner Age. With the temperatures dropping in Michigan, we can’t blame anyone retiring to Florida.

Purchasing Young, Existing Home Sales, & More.

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Housing Starts for October were up 1.5 percent but Single-family Starts were down 1.8 percent which was disappointing, showing the gain was propelled mostly by multi-family starts. With price growth slowing down and mortgage rates not increasing as fast as some experts had forecasted, mortgages and homeownership is “attractive” right now. If only supply would catch up. That being said, for some homebuyers, the notice of rates and prices both still rising coupled with the limited most in-demand housing (starter homes) have lead some homebuyers to hit pause or hesitate; thus one reason why builder confidence dropped 8 points to a reading of 60 according to the National Association of Home Builders (NAHB) Housing Market Index. Note: any reading above 50 is still considered good, healthy, and strong.

Existing Home Sales showed a different story, highlighting homebuyers taking action with Sales up 1.4 percent in October, beating expectations and the first increase seen in 6 months. The report also showed 80 consecutive months of annual median existing home prices gains, though they have slowed down in growth—this is good for homebuyers. Reminder: deceleration is not a decline.

For the first time in 28 years, since 1994, the Federal Reserve is proposing to increase the threshold of an appraisal requirement from $250K to $400K, allowing certain home sales of $400K and below to no longer require an appraisal. However, this “would not apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency.” Meaning, home loans sold or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac would not be eligible for the appraisal exemption. Why the proposal? The threshold doesn’t hold up against today’s home prices. What do appraisers have to say? This could be significantly dangerous for lending as the expectation is more evaluations will be allowed to replace appraisals. More to come on this in the future.

Those who purchase a home between ages 25 and 35 can accumulate an additional $100K in home equity than those who purchase after the age of 35, leading those who purchase at a younger age to be more financially stable in retirement and have more home wealth than those who purchase later in life. Those who purchase a home before the age of 25 proved to receive more “bang for their buck” as they typically purchased a lower priced home but had less equity than those who purchased between 25 and 35 years old because they, typically, purchased such a lower priced home. Moral of the story: if you can make it work, purchase young.