Home Prices On The Rise, Says The October Home Price Index Report

More positive signals from housing -- home values are still on the rise.

According to the Federal Housing Finance Agency, after posting its first quarterly increase since 2007 this past September, the Home Price Index rose by another 0.6 percent in October.

Prices are up in 4 of the last six months.

But before we take the stats to the proverbial bank, it's important that we recognize the Home Price Index for its shortcomings.

1. HPI only accounts for homes with mortgages backed by Fannie Mae or Freddie Mac
   
   
2. HPI only accounts for re-sold homes -- newly-built homes are excluded
   
   
3. HPI aggregates national data whereas real estate markets are local phenomena
   

On a broad scale, the Home Price Index can be useful, but it doesn't specifically apply to any specific U.S. market. For that, analysts tend to turn to the Case-Shiller Index, a privately-produced report that assesses home values in 20 cities nationwide.

The good news for home sellers is that Case-Shiller's most recent report corroborates the government's conclusion -- home values are creeping back.

Home buyers should pay attention. When public and private sector data is in accord, markets tend to go along and, looking back, housing likely bottomed in February 2009. Since then, home sales are up, home supplies are down, and values have increased in most U.S. markets.

Furthermore, so long as mortgage rates remain low and government stimulus is in place, the trend should continue through at least the first quarter of 2010.

If you're on the fence about buying a home right now, or wondering about timing, consider your options vis-a-vis today's market. Into the new year, homes won't likely be as cheap to buy, nor to finance.

What's Ahead For Mortgage Rates This Week : December 28, 2009

Mortgage markets made a 4-day losing streak last week on thin holiday volume and overall economic optimism. It was awful news for rate shoppers because mortgage rates were higher every day last week.

The holiday-shortened week marked the third out of 4 during which rates worsened and last week's action happened to be especially harsh.

Monday's action was the worst for rates since July, for example.

Tuesday's was only slightly less worse.

Today, conforming, 30-year fixed mortgage rates have reached at a 15-week high -- well off the lows set in early-December.

Normally, when mortgage markets worsen this badly, this quickly, it's because of strong economic data, or growing inflationary expectations. Last week saw neither.

• Existing Home Sales showed strength, but was offset by New Home Sales
  
  
• 3rd Quarter GDP showed the economy growing at a slower-than-expected pace
  
  
• Inflationary data wasn't as high as was expected
  

Furthermore, consumer confidence didn't rise as planned.

And yet -- stock markets gained. All 10 sectors improved and they did so at the expense of mortgage bonds.

This week is again holiday-shortened so expect the same low-volume, high-volatility trading as last week. There's few data releases save for Tuesday's Case-Shiller Index. Therefore, watch for momentum trading in either direction.

Markets close early Thursday and re-open Monday, January 4, 2010. If you need to lock a rate, make sure of your loan officer's hours.

There's A Very Good Reason Why The New Home Sales Data Plunged In November

One day after November's Existing Home Sales report blew away estimates, the Census Bureau's related New Homes Sales report failed to impress.

A "new home" is a home that is newly-constructed; not bought as a resale.

In a lackluster showing, New Home Sales dropped 11 percent in November, falling to the lowest levels since April. Furthermore, the all-important "months of supply" climbed by a half-month to 7.9.

The press pounced on the figures and if you only read the headlines, you'd think that housing had cratered. Some of the angles were quite bold, even:

• Weak U.S. Home Sales Show Recovery's Shakiness (Reuters)
  
  
• New Home Sales Plunge In November (CNNMoney.com)
  
  
• Housing Forecast : Off Life Support, Still In Critical Care (CBS News)
  

These headlines, although technically accurate, only tell half the story, however. The other half relates to November 30's role as the original First-Time Home Buyer Tax Credit ending date.

See, different from home resales, when a contract is written on a newly-built home, the home is rarely finished. According to the Census Bureau, just 1 in 4 new homes are sold "move-in ready".

The other 3 of 4 are in various stages of construction when a buyer signs on the dotted line.

Some have yet to break ground, even.

Regardless, it's at this date of signing that the Census Bureau counts the home as "sold" -- not at the actual closing. This is the main driver of the November New Home Sales data dip.

First-time home buyers would have risked up to $8,000 in federal tax credits if they bought a newly-built home and it wasn't ready for move-in by November 30, 2009. And it wasn't until November 5 that the credit was officially extended.

Suddenly, first-timers representing more than half of last month's Existing Home Sales isn't so shocking. Buying new carried a lot risk.

There's always more to the story than the headline. Sometimes, you have to dig deeper. Looking back over 10 months, the housing market is on a steady course of improvement. November's

New Home Sales data -- although weak -- is not terrible...Despite what the papers might say.

Home Inventories Plummet, Foreshadowing Higher Prices By Spring 2010

Home resales are soaring.

For the 4th consecutive month, the Existing Home Sales report revealed what today's buyers and sellers already know -- there's a lot of buyer activity right now.

Existing Home Sales surged 7-plus percent in November, posting its largest number of recorded sales in 33 months. Sales volume is up 44% higher versus last year.

It's another example of the housing market in recovery.

There were other interesting statistics buried in the November data, too. According to the National Association of Realtors:

1. 51 percent of home buyers were first-timers
   
   
2. Distressed properties accounted for one-third of all sales
   
   
3. The median home sale price rose slightly
   

But of all the stats from the November Existing Home Sales report, perhaps the most important one is the one showing home supplies falling to 6.5 months. It's nearly half of the home supply available last November.

The rapid run-off of inventory throughout 2009 is more than a trend at this point and suggests higher home valuations in 2010. Especially because mortgage rates are low, tax credits are available, and the press is giving housing positive coverage.

You shouldn't feel rushed to buy, but you probably don't wait too long, either. The best deals of 2010 may be gone before that Spring Buying Season even starts.

When It's A Holiday Week, Mortgage Rate Shoppers Should Be Extra Vigilant

Mortgage pricing worsened Monday, driving mortgage rates to their highest levels since October.

The day's action was drastic, too.

Some banks issued as many as 3 rate sheets Monday -- each worse than the preceding and one reason why rates got so bad, so quickly, is because this week marks the beginning of mini-Vacation Season on Wall Street.

Between now and January 4, 2010, be prepared for big swings in pricing from day-to-day.

Shopping for a mortgage could be a challenge.

The relationship between vacation days and mortgage rate volatility is rooted in how mortgage rates are "made".

1. Conforming mortgage rates are based on the price of mortgage-backed bonds, a security that is sold on Wall Street
   
   
2. Mortgage-backed bonds can't sell without a bond buyer and a bond seller agreeing to a specific sale price
   

So, during vacation week, when the total number of market participants are less, there are fewer opportunities for buyers and sellers to meet at a specific price. As a result, bond prices rise and fall with a higher velocity than on a "normal" day. Rallies and momentum plays are exaggerated, too.

Now, mortgage market action like this can work in your favor, or it could work out of your favor.

Unfortunately, on Monday, rates moved out of favor.

This rest of this week is stacked with market-moving economic data. The data could be better-than-expected, or worse-than-expected. Either way, markets will react a little more feverishly than normal. Therefore, if you have a chance to lock a favorable rate, consider taking it.

Before long, the rate could be gone.

What's Ahead For Mortgage Rates This Week : December 21, 2009

Mortgage markets improved last week as pricing followed a roller coaster-like pattern. After touching a 6-week high Tuesday, rates rallied to weekly lows Thursday, and then jumped back higher Friday.

Despite the improvement last week overall, mortgage pricing remains significantly worse from the all-time lows set in late-November.

Oddly, last week's most prominent mortgage-related story wasn't the most influential one.

On Wednesday, the Federal Open Market Committee adjourned from a two-day meeting. It voted to leave the Fed Funds Rate unchanged from its current target zone of 0.000-0.250 percent.

This wasn't news, per se -- markets expected the "no change" vote.

However, in its accompanying press release, the Fed appeared more rosy in its economic outlook, citing improving labor markets and low levels of inflation. Results like this are a mixed bag for rate shoppers, but is generally welcomed as good news.

Rates were unchanged after the FOMC release.

The bigger story last week comes from Greece.

Concerns for the country's debt burden have been in play for weeks, but last week, Standard & Poor's officially downgraded Greece's debt rating. The move triggered concerns regarding broader Eurozone debt, especially considering the recent issues in Dubai.

U.S. mortgage markets benefitted from Greece's troubles as "safe haven" attracted investors, driving down rates Thursday afternoon.

Debt concerns should remain in focus this week. Furthermore, there's a bevy of domestic data that could swing rates in either direction, too. Most notably, watch for Tuesday's housing data,
Wednesday's inflation data, and Thursday's consumer confidence data. Each can be a powerful influence on rates.

There will be less volume on Wall Street because of Christmas and less volume tends to spur mortgage rate volatility. Be wary of swings in either direction.

Markets close early Thursday and will be closed Friday.

Housing Starts Jump; Home Sellers Lament

Housing Starts jumped last month as builders got back to business. It's a telling sign for the economy, but bad news for next season's sellers.

With more homes coming online, home prices may be slow to rise nationwide.

A "Housing Start" is a privately-owned home on which construction has started. In November, starts rose by nearly 9 percent while remaining within the same tight range we've seen since June.

More interesting that Housing Starts, though, is the accompanying data for Housing Permits. After a 5-month plateau, Housing Permits finally broke through, posting its largest number in 12 months.

This, too, bodes poorly for sellers.

Housing permits are precursors to housing starts so because the number of permits are higher today, we expect that the number of starts will be higher just a few months from now.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

More permits means more starts which, in turn, leads to a larger home inventory. And when home supplies grow faster than the home demand, prices fall.

Throughout the early part of 2010, low mortgage rates and federal tax credits should help hold demand high but if builders flood the market with new, quality product, sellers may find that they've lost some of their leverage.

For home buyers, the rise in starts is welcomed.

A Simple Explanation Of The Federal Reserve Statement (December 16, 2009 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy "has continued to pick up", that the jobs markets is getting better, and that housing market has shown "some signs of improvement" lately.

It's the fourth straight statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the worst of the recession is likely behind us.

The economy isn't without threats, however, and the Fed identified several, including:

1. Tight credit conditions for consumers
   
   
2. Reluctancy of businesses to hire new workers
   
   
3. Lower overall housing wealth
   

The message's overall tone remained positive, however and inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market. That plan -- due to expire at the end of March 2010 -- should be noted by today's homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is negative. Mortgage rates are rising this afternoon.

The FOMC's next scheduled meeting is January 26-27, 2010.

Fannie Mae Gets Tough(er) On Borrowers...Again!

Fannie Mae raised the bar for mortgage applicants this past weekend. Getting approved for a home loan just got harder.

In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that's the case, this won't be the last guideline change Fannie Mae makes -- especially with loans defaulting at an above-normal clip.

The immediate changes are major. The first pertains to credit scores.

Effective December 13, 2009, the bulk of Fannie Mae's loans require a 620 credit score minimum. There are very few exceptions.

A second relates to loans with private mortgage insurance.

Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Pay higher mortgage insurance premiums month-after-month
   
   
2. Pay a one-time fee paid at closing to compensate for higher risk

Both options result in higher consumer loan costs.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.

In no case whatsoever may debt-to-income exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for "expanded level" mortgage approvals. These updates affect just a small part of the population.

So, home prices are rebounding, mortgage rates are low, and -- for 5 more months at least -- there's a federal tax credit for qualified buyers. You don't have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.

The best "deal" won't matter if you can't get qualified on your mortgage.

The Federal Reserve's Relationship To Mortgage Rates

The Federal Open Market Committee meets today for the last time in 2009. It's a 2-day meeting and the Fed is expected to leave the Fed Funds Rate near 0.000 percent.


But that doesn't mean mortgage rates won't change.

See, a major misperception among the public is that the Federal Reserve sets mortgage rates. That's false. Mortgage rates are based on the price of mortgage-backed bonds.

As an example, since 2000, the Fed Funds Rate and the 30-year fixed rate mortgage have been within 1 percent of each other at times, and as far apart as 5 percent at others.

If there was a direct relationship between the two, such a spread would be impossible.

The Federal Reserve doesn't set mortgage rates. Wall Street does. However, whenever the Fed adjourns from its meetings, mortgage rates are susceptible to change.

For home buyers and rate shoppers, this week's Fed meeting takes on added significance.

Over the last half-year, the Fed has used its post-meeting press releases to acknowledge an improving economy in which growth is tempered by job loss and tepid spending. In November, though, net job gains nearly went positive and Retail Sales data proved strong.

If the Fed gets more positive in its message tomorrow, mortgage rates will suffer. This is because Wall Street will use the Fed's position on the economy as a reason to buy stocks. Some of the cash to fuel those buys will come from the mortgage bond market.

As extra bond supply hits Wall Street, mortgage rates go up.

Similarly, if the Fed's message goes negative on the economy, investors are expected to sell their stock positions in favor of buying bonds. This makes rates go down.

So, the Federal Reserve doesn't make mortgage rates, but it does exert an influence on them. In other words, rate shoppers would be wise to watch for the FOMC's 2:15 PM adjournment. Even though the Fed Funds Rate is expected to remain unchanged, mortgage rates certainly are not.

Federal Reserve Meeting Whats Ahead for Mortgage Rates This Week: December 14th

Mortgage markets worsened for a second consecutive week last week amid debt default concerns and stronger-than-expected economic data. Dollars left the bond market and mortgage rates suffered.

After re-reaching an all-time low December 1, mortgage rates have since rolled back to mid-November levels.

Rates are still low right now. Just not as low.

And meanwhile, last week's big story, the one that should concern mortgage applicants between now and early 2010, is the story of Retail Sales.

Last week, a government report showed that American consumers are spending more this holiday season than was expected. The Retail Sales data implies that consumers are feeling more confident in themselves, and in the economy overall.

This is one of the last remaining pieces in the economic recovery puzzle.

Job growth, of course, is another, and both will be in focus this week as the Federal Open Market Committee meets for its final 2-day meeting of the year.

The FOMC isn't expected to raise the Fed Funds Rate from its current "target range" near 0.000%, but when the FOMC adjourns at 2:15 PM Wednesday, its press release will dominate the news.

Specifically, watch for verbiage on the expected economic growth for 2010 because no matter what the Fed says, mortgage rates will be in flux. As one
example:

• If the Fed says inflation is under control, mortgage rates should fall
  
  
• If the Fed says inflation pressures are growing, mortgage rates should rise

There's other news this week, too, including PPI and CPI - 2 popular inflation gauges, plus some housing data, too.

If you need to lock a rate this week, it may be safer to lock prior to the FOMC's adjournment.

Given the recent strength in Retail Sales and the reports of "crowded malls" this past weekend, the Fed may choose to revise its growth estimates for the economy - a move that would be awful for mortgage rates.

Strong Retail Sales Data Could Lead To Higher Mortgage Rates In January

If you wonder what mortgage rates and home affordability will look like next year, today's Retail Sales data may hold your answer.

Versus October, November's ex-auto sales were up by more than 1 percent. Analysts expected the increase, but not an increase of this magnitude.

"Ex-auto" means that motor vehicles and parts are excluded from the data.

Home values are increasing in many parts of the country and household net worths are rising, too. Therefore, we can infer from the Retail Sales report that U.S. consumers are starting to feel better about their individual finances, and about the economy overall.

To homebuyers and rate shoppers, strong Retail Sales data may foreshadow higher rates for mortgages ahead. This is because sales data is a by-product of consumer spending and consumer spending accounts for more than two-thirds of the economy.

As spending increases, the economy tends to expand, drawing investment dollars into stock markets and away from bond markets -- including mortgage-backed bonds, the basis for conforming mortgage rates.

Less bond demand leads to higher rates and, therefore, lower levels of home affordability.

Despite the Holiday Season momentum, however, 2009 will likely mark just the second time that Retail Sales data fell year-over-year since the government started tracking it 40 years ago.

The other year was 2008.

But, if November's Retail Sales is a reliable indicator of consumer sentiment overall, we should expect 2010 to rebound strongly. And when it does, mortgage rates should suffer.

The housing market is recovering, mortgage rates are still near all-time lows, and the government is offering an $8,000 tax credit to qualified buyers through April 30, 2010. If you plan to buy a home next spring, you may want to consider moving up your timeframe. Waiting may be costly.

Foreclosure Activity Falls For The 4th Straight Month

Since peaking in July 2009, national foreclosure activity has dropped through 4 consecutive months.

On a month-to-month basis, November's foreclosure activity fell another 8 percent.

However, national foreclosure activity continues to be dominated by a minority of states.

As reported by RealtyTrac.com, more than half of November's foreclosure-related activity sourced from just 4 states:

• California
  
  
• Florida
  
  
• Illinois
  
  
• Michigan

These are the same 4 states that topped October's foreclosure activity despite three of them posting month-to-month declines last month.

The remaining Top 10 states in terms of total foreclosure activity include Arizona, Texas, Ohio, Georgia, Nevada and New Jersey.

If you've been actively looking at REO lately, you've likely noticed that true bargains are harder to find. This is because buyers of all types -- first-timers, move-ups, and investors -- are purchasing bank-owned homes aggressively and getting better at identifying the "best ones".

But just because supplies are dwindling doesn't mean you should just jump in. Buying foreclosures isn't for everyone for two very strong reasons:

• Homes are often sold as-is and may have "issues"
  
  
• The closing process can be unpredictable

Therefore, if you're thinking of buying a foreclosed home, be sure to talk with your real estate agent about potential problems before going under contract. Better too soon than too late.

There are still good deals in the foreclosure market, but based on November's data, they may not last through the winter. "Distressed home" sales now account for 30 percent of home resale activity.

How To Trim Your Utility Bills Without Inconveniencing Yourself

The average family spends $2,200 per year in electric bills and the average home is responsible for twice the amount of greenhouse gases than the average automobile.

Whether you want to save money or save the environment, this 5-minute piece from the NBC

Today Show is for you. In it, you'll learn that just by being aware of your energy consumption, you can reduce it by up to 15 percent.

The piece centers on a device called a Power Monitor which retails from $30 to $100, depending on the model. It measures the actual cost of using an appliance, or using a light, or charging a laptop, or any other household energy use.

Among the cost findings:

• A plugged-in phone charger no phone attached costs $0.10 per hour
  
  
• Cooking with a microwave costs $0.88 per hour
  
  
• Big screen TVs cost $0.06 per hour to operate

Obviously, turning off lights when rooms aren't in use saves money, too.

By making small changes -- most of which aren't inconvenient -- the average family can drop its energy bill by hundreds of dollars each year.

How To Increase Your 2009 Mortgage Interest Tax Deduction

For many American homeowners, interest paid on a mortgage is tax-deductible in the year in which it was paid.

Knowing that, eligible homeowners can increase their 2009 tax deductions just by making their January 2010 mortgage payment before the end of the year.

By paying in 2009, the mortgage interest paid can be applied against 2009's itemized tax deductions even though the payment isn't technically due until 2010.

It can reduce your tax burden come Thursday, April 15, 2010.

And lest you think you're paying the mortgage "in advance", remember that mortgage interest is paid in arrears; a payment due January 1 accounts for interest that accumulated in December 2009 anyway.

Tax planning is a complicated issue and not all homeowners qualify for mortgage interest tax deductions. Check with your tax professional before making tax planning decisions.

If you don't have an accountant you trust, call or email me anytime; I'm happy to make a recommendation to you.

What's Ahead For Mortgage Rates This Week : December 7, 2009

Mortgage markets finally reversed course last week, selling off with fury and causing prices to plummet.

When bonds prices fall, rates rise.

The action broke a multi-week winning streak, much to the disappointment of rate shoppers everywhere. Rate hikes came in stages.

First, early in the week, mortgage bonds fell out of favor as traders booked profits ahead of the November jobs report and as concerns over a Dubai Default waned.

Then, on Friday, when the jobs report was ultimately released, it showed a net loss of just 11,000 jobs in November and dip in the Unemployment Rate to 10.0 percent.

Mortgage markets got hit again.

Now, since bottoming last Monday, mortgage pricing is worse by more than 100 basis points. As that figure relates to rates, it's a jump of anywhere from a quarter- to a half-percent.

Last week was a bad week to not be locked in. Unfortunately, this week may not be much better.

Without much data due for release, momentum should lead mortgage rates higher. Amid a few confidence surveys and a speech by Fed Chairman Bernanke, the biggest news on the week will be Friday's Retail Sales report.

Retail Sales matters to mortgage rates because consumer spending accounts for two-thirds of the economy. And now, with jobs data looking stronger, Retail Sales are expected to show a modest increase versus last month.

If the data comes in better-than-expected, mortgage rates should rise -- much like they did on the jobs data. On the other hand, if the data is weak, expect rates to retreat.

So far this season, Holiday Shopping has been mixed.

Mortgage rates tend to rise faster than they fall so if your homebuying or refinance needs are immediate, it may be prudent to lock your rate rather than to wait and see what happens with the economy and this week's momentum.

Despite getting worse last week, mortgage rates are still very low.

Falling Unemployment Rate Leads To Higher Mortgage Rates Today

This morning's jobs report is causing mortgage rates to rise, capping a week during which rates have already jumped 3/8 percent off all-time lows.

The government's November Non-Farm Payrolls report reinforced the notion that the recession is nearly over, if not over already.

Just 11,000 jobs were lost last month -- much fewer than analysts had expected -- as the Unemployment Rate fell to 10.0%.

If it seems strange to be talking economic recovery while

Americans are still losing jobs -- 7.2 million since 2008 -- remember that data always needs context.

See, analysts view employment figures as a lagging indicator for the economy. This is because business owners tend to make hiring decisions based on how business has been -- not on how it will be at some point in the future.

The jobs report rarely reflects the "right now". As an example, job loss peaked in January 2009 -- 4 months after the height of the financial crisis.

We saw the same pattern during the Recession of 2001.

According to government data, during the last recession, job loss peaked in October 2001 but the recession ended the very next month. It wasn't until October 2002 that employment went net positive on a monthly basis.

And this is why investors are cheering November's jobs report. Better-than-expected numbers and a falling Unemployment Rate show that the economy is improving.

Unfortunately for rate shoppers, better-than-expected data is pushing mortgage rates higher.

Rates are expected to open 0.250% higher versus yesterday's close.

Store Credit Cards : The Hidden Cost Of "Instant Savings"

'Tis the season to do shopping -- and get bombarded with offers to open credit cards.

The deals are tempting, too. "Open a charge card today" and save up to 20% on your purchase. Considering that the average Black Friday ticket was $343, that's $68 saved per store.

For big-ticket items like televisions, the savings are even bigger.

But for people in the market for a new home -- or looking to refinance -- taking advantage of in-store savings could be a long-term money loser.

Every time you apply for a credit card, your credit score drops.

According to myFICO.com, "new credit" accounts for 85 out of 850 possible credit scoring points. New credit is defined by such traits as:

• Number of recently opened accounts
  
  
• Number of recent credit inquiries
  
  
• Time since credit inquiry(s)
  
  
• Proportion of accounts that are recently opened to all open accounts

Shoppers with few open credit cards are more likely to see their scores drop that shoppers with many cards.

Regardless, a credit score is worth protecting because of how mortgage rates are made. A conventional mortgage applicant with 20% equity whose FICO is 720-739 will be offered rates 0.125% higher than a comparable applicant at 740.

• For 700-719, the rate increases by 0.375%
  
  
• For 680-699, the rate increases by 0.750%
  
  
• For 660-679, the rate increases by 1.250%
  
  
• Having a low credit score can be expensive.

It is okay to take advantage of in-store savings during the holiday shopping season, but it's also important to be aware of how your credit score may be affected.

If you're not applying for a mortgage in the next six months, you'll likely be alright. But, on the other hand, if you know you'll need your FICO soon, consider whether saving 15 percent on a $343 ticket is worth the long-term cost of a higher mortgage rate.

Pending Home Sales Data Forecasts Higher Home Values Next Month

When a home seller accepts a contract on an MLS-listed property, the property's status changes from "Active" to "Pending".

This means the home is scheduled to sell, but not yet sold.

Each month, the National Association of Realtors® tallies the number of pending homes and publishes the data as the Pending Homes Sales Index report.

In October, for the 9th straight month, the index gained. It's the longest such streak in Pending Home Sales history.

Because a "pending" home sale is just a contract between buyer and seller, it's not as important to the economy as actual home sales. However, the Pending Home Sales Index can be a fine predictor of future activity.

Historically, 80 percent of homes under contract "close" within 60 days, and most others close within 120 days. Recent Existing Home Sales data corroborates this. Home sales activity is at its highest pace in nearly 3 years.

The Pending Home Sales Index does have some shortcomings, though:

1. It doesn't account for newly constructed homes, a small but important part of the real estate market
   
   
2. It doesn't track For Sale By Owner properties and other non-MLS listed homes
   
   
3. Its sample set is small, measuring just 20 percent of all MLS-listed sales

Despite this, however, Pending Home Sales is a terrific measure of real estate market strength.

Homes are going under contract at a dizzying pace. It's thinning out home inventory supplies and pressuring prices to rise.

This chain reaction is what makes Pending Home Sales Index worth tracking. As the number of homes under contract increase, home prices can't be far behind.

New Home Supplies Plummet, Pressuring Home Prices Higher

The supply of newly-built homes fell to its lowest levels since 2006, offering additional proof of a housing market in recovery.

Home supply is defined as the amount of time it would take to sell the current inventory of homes at the current pace of sales.

In October, for the 8th consecutive month, home supplies fell.

Since peaking in January 2009, it's now down by almost half.

Lower supply leads to higher prices. This is Economics 101.

Furthermore, supply is expected fall into 2010. According to the government, builders are breaking ground on new homes at a declining pace, even as sales ramp up.

Builders are cheering the October New Home Sales report, but its the everyday sellers of "existing homes" that have real reason to celebrate.

See, as builders clear out their respective inventories and turn profitable, there's less reason for them to offer the types of over-the-top purchase incentives that characterized the last 12 months of selling.

With fewer builder incentives, the playing field levels between large corporations and individual home sellers.

And while this is happening, buyers are eagerly taking advantage of low mortgage rates and federal tax credits for buying homes. It's pressuring home prices higher overall.

Since January 2009, the average sale price of a newly-built home is up 6 percent.

What's Ahead For Mortgage Rates This Week : November 30, 2009

Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying.

The holiday-shortened trading week amplified what should have been modest gains into large ones.

Conforming mortgage rates dropped by about a quarter-percent last week, dropping them near their best levels of the year -- and of all-time.

Oddly, mortgage rates are falling as the U.S. dollar weakens.

This is atypical because mortgage bonds are repaid in U.S. dollars. When the value of the dollar is falling, therefore, the value of holding mortgage bonds become less over time.

Investors are snapping up bonds with fury, however. Partially because of lingering concerns related to Dubai, and partially because of faith in the U.S. economy's long-term health.

This week, those beliefs could be shaken to the core -- specifically because of Friday's jobs report.

It's no secret that the economy is growing. Housing is improving, banks are re-capitalizing, and businesses are making capital investment. However, employment is lagging.

More than 4 million jobs have been lost this year and the unemployment rate is north of 10 percent for the first time since 1983. Consumers are worried for their jobs and are guarding their wallets the holiday season as a result.

The economy can't grow without consumer spending, though, and that's why Friday's job figures will play an especially large role in mortgage markets. If employment data goes positive, stock markets will rally at the expense of mortgage rates.

Conversely, if data looks worse, mortgage rates should dip.

Either way, it's a gamble. If you haven't looked at the benefits of a refinance lately, waiting until

Friday to see what happens may be ill-advised. This is because the last two times mortgage rates fell this low, markets corrected within 48 hours, sending rates soaring higher.

Rates look good today. Consider locking something in before rates have reason to rise.

One Reason Why Mortgage Rates Are Back To All-Time Lows

Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.

The FOMC Minutes is a companion to the Federal Reserve's post-meeting press release. It's released 3 weeks after the Fed adjourns and details the internal debates that shape our nation's monetary policy.

As compared to the press release, the minutes can be rather lengthy. November's press release featured 428 words, the minutes offered 6531.

However, this extra level of detail shapes markets and mortgage rates. With Wall Street unsure about the economy's path, investors look to our nation's central bankers for guidance.

The Fed has made several points clear:

1. The economy shows tell-tale signs of improvement
   
   
2. Unemployment threatens the recovery
   
   
3. Inflation pressures are low, for now

Overall, the FOMC Minutes paint the economy as in a state of measured repair, and under tight federal surveillance. Investors like this message and, as a result, stock and bonds markets are improving.

If you haven't checked mortgage rates lately, make a point to do that. In the wake of the FOMC Minutes, conforming mortgage rates are now hovering near their all-time lows set exactly 1 year ago.

The Home Price Index Shows Home Values Increasing, Case-Shiller Agrees

It's official -- home prices are no longer in free fall.

According to the Federal Housing Finance Agency, the Home Price Index posted its first quarterly increase since 2007 last quarter.

The news was reported Tuesday.

The Home Price Index is an interesting metric. It's huge in its scope, accounting for every home sold in the country that backs a mortgage bound for Fannie Mae or Freddie Mac with two notable exceptions:

1. It doesn't track new construction
   
   
2. It doesn't track multi-unit homes

Because the Home Price Index makes these specific exclusions, and because it doesn't account for FHA and jumbo mortgages, some analysts discount the HPI's relevance. They prefer the private-sector Case-Shiller Index instead.

Now, to be fair, the Case-Shiller has its own set of flaws, too.

For example, it excludes condos and co-ops, and only tracks sales in 20 cities nationwide. But, of all the private home valuation models, Case-Shiller is the most well-known and most widely-used.

The Case-Schiller Index was also released Tuesday and the report showed the same results as its government-issued counterpart -- home values increased between the second and third quarter.

When the Home Price Index and Case-Shiller Index reach similar conclusions, markets tend to buy-in. Home buyers should, too.

Home values have likely bottomed and are starting to turn higher, as shown in two separate reports. High sales volume and dwindling supply are contributing factors. So are low mortgage rates and a tax credit.

If you're on the fence about buying a home, at least consider your options. In 2010, homes are unlikely to be as cheap to buy, or as cheap to finance.

Existing Home Sales Blow Past Expectations

Another month, another piece of evidence that the housing market is in recovery.

Existing Home Sales surged in October as the nation's homebuyers took advantage of low mortgage rates, low list prices, and, for some, a generous tax credit.

Home resales are 23 percent higher versus a year ago and home supply is down to 7 months nationwide.

Inventory hasn't been this low since February 2007.

The news shouldn't be surprising, however. The same real estate trade group that produces the Existing Home Sales report also publishes a monthly report meant to predict future home sales called the Pending Home Sales Index.

Pending Home Sales have been through the roof since mid-May.
So, with pending home sales showing no signs of slowing and 80% of pendings turning into actual, closed sales, we can expect existing home sales volume to rise in the coming months, too.

Especially because Congress extended the home buyer tax credit to include (1) "Move-up" buyers and, (2) Buyers with higher household incomes.

It's terrific news for home sellers. The housing market turnaround means higher sale prices and fewer concessions to buyers long-term.

To buyers, on the other hand, the news isn't so good. The window to find a "deal" appears to be closing quickly.

What's Ahead For Mortgage Rates This Week : November 23, 2009

Mortgage markets worsened last week on a mixed bag of economic data. Inflation data came in soft, but so did the start of the holiday shopping season.

For the first time in a month, mortgage rates worsened last week, adding roughly 0.125 percent on conforming fixed-rate products, and a little bit more on ARMs.

Despite rates worsening, there was still some good news for home buyers and would-be refinancers. Mortgage rate volatility was markedly lower than in recent weeks. You could shop for mortgage rate last week and actually take your time about it.

This is in stark contrast to the last month or so over which mortgage rates changed every few hours, on average.

This week, though, because a heavy data calendar is combining with a holiday-shortened trading week, rates aren't likely to stay as tame.

• Monday: Existing Home Sales
  
  
• Tuesday: Consumer Confidence, Home Price Index, Fed Minutes
  
  
• Wednesday: New Home Sales, Personal Income and Outlays

Each of these data points are market-movers by themselves. In tandem, however, they could really shake things up. Then, at the tail end of the week, markets will react to Black Friday.

If stores look full Friday and initial receipts appear high, stock markets should rise at the expense of bonds, leading mortgage rates higher.

Additionally, expect that mortgage rate changes will be amplified because of low trading volume.

This could work in your favor, or out of your favor -- depending on the market direction.

With mortgage rates at such low levels and unlikely to fall much further, locking a rate is advisable. If you choose to float, though, keep your loan officer on speed dial because when rates do rise, they're going to rise quickly.

Should You Consider A 15-Year Fixed Mortgage?

For today's home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.

The 15-year/30-year interest rate spread is near its 5-year high.

Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments. This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.

As compared to 30-year terms, 15-year products repay 3 times as much principal each month.

Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting. The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.

Another negative is that the sheer size of the payment. If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do.

In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term. If you can manage it, though, the rewards are tangible.

At today's rates, a 15-year fixed and 30-year fixed costs $230 extra per $100,000 borrowed.

Housing Starts Are Down And Why It's Terrific News For Sellers

A "Housing Start" is a home on which construction has started and, for the 4th straight month, national single-family housing starts held steady last month.

When the demand for homes grows faster than the number of homes for sale, prices increase.

As recent home sales data confirms, buyers currently outpace sellers and one consequence of this is an increase in multiple-offer situations this year.

It's no wonder home prices are up across so many neighborhoods.

October's Housing Starts report is yet another piece of housing data foreshadowing rising home prices into 2010.

Building Permits were also down in October, a potential demand-to-supply imbalance magnifier. Without permits, there's no future construction. This drains supply. Meanwhile, tax breaks and low rates tend to stimulate demand and, right now, we've got both.

Therefore, so long as demand remains semi-constant into the New Year, expect home prices to rise.

In many markets, they already are.

The 2010 Conforming Loan Limits

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on "typical" housing costs nationwide.

Loans in excess of this amount are typically called "jumbo".

While home prices increased from 1980 to 2006, so did conforming loan limits. Since then, however, as home prices have dipped, the conforming loan limit has held.

Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit.

The 2010 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
  
  
• 2-unit properties : $533,850
  
  
• 3-unit properties : $645,300
  
  
• 4-unit properties : $801,950

But conforming loan limits don't apply to all U.S. geographies equally. As a result of various economic stimuli since 2008, the government now considers certain regions around the country "high-cost" areas. In these areas, conforming loan limits can range to $729,750.

There are less than 200 such areas nationwide. The complete list is published on the Fannie Mae website.

Simple Real Estate Definitions : APR

APR is an acronym for Annual Percentage Rate. It's a government-mandated calculation meant to simplify the comparison of mortgage options.

A loan's APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan's interest rate. It's not. APR represents the total cost of borrowing over the life of a loan.

"Interest rate" is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an "apples-to-apples" comparison between loan products.

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees. In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.
First, different banks includes different fees into their APR calculations. By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, "life of the loan" is assumed to be full-term. When a 30-year mortgage pays off in 7 years or fewer -- as most of them do -- APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages -- it's not the only metric. The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

What's Ahead For Mortgage Rates This Week : November 16, 2009

Mortgage markets improved last week as foreign buyers of mortgage debt helped to push mortgage rates to a 4-week low.

It marked the 3rd consecutive week that rates improved, breathing extra life into this year's ongoing Refi Boom.

Fixed-rate, conforming mortgage rates fell about 0.125 percent on the week. ARMs did about the same.

There wasn't much data to move mortgage rates last week; investors worked mostly on momentum and trends. However, the Friday University of Michigan Consumer Sentiment survey release garnered some attention.

After worsening in August and September, consumer sentiment fell for the third straight month in October. Analysts worry about what it could mean to the economy. Holiday Shopping season is here and consumer spending fuels the economy. If households hold the purse strings tight, our nation's budding economic recovery may stall.

In a scenario like that, employment rates won't rebound so fast, but rate shoppers might not mind. Slower-than-expected economic growth tends to suppress mortgage rates, helping to improve home affordability overall.

This week, data comes back into focus.

At 8:30 AM ET today, the government will release October's Retail Sales report. This one should be closely watched for its ability to change rates. A weak report should drag rates down, and a strong one should push rates up.

Then, on Tuesday and Wednesday, look for PPI and CPI -- two key inflation indices. Inflation causes mortgage rates to rise so if either of these reports comes in hotter-than-expected, rates will almost certainly rise.

And, lastly, also on Wednesday, we'll get the Housing Starts report for October. Don't expect the markets to move on this one, but keep an eye on the data anyway. Housing markets remain crucial to economic recovery.

Despite rates hovering near recent lows, remember that markets change quickly. A rate quote from the morning is rarely valid by the afternoon and, when rates rise, rates rise fast.

Are There Any Foreclosure Deals Left?

For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.

As reported by RealtyTrac.com, more than half of October's foreclosure-related activity came from just 4 states:

1. California
   
   
2. Florida
   
   
3. Illinois
   
   
4. Michigan

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.

1. Foreclosure activity is down 3 percent from last month
   
   
2. Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada's foreclosure pace is down 4% from last year. This is a big deal because

Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada's year-to-year foreclosure rate hadn't fallen in more than 4 years.

It's too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by. First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn't for everyone.

For one, properties are often sold as-is and may be defective. The cost of repairs may negate "the deal" or "the steal" -- depending on the cost of the home.

Secondly, closing on a foreclosed home can be a 3-month long process. This is because banks rarely process home sale paperwork as fast as a "person" would. A 3-month timeframe may not fit your schedule.

In the end, fundamentally, buying a foreclosed home is the same as buying a "regular" home -- there's a contract and a closing. Most of the steps in the middle, however, are different.

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website. If you like what you see, talk to your real estate agent about what to do next.

There's still good deals in the foreclosure market, but based on October's data, they may not last through the winter.

Banks Raise Mortgage Qualification Standards

Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet.

Nationally, mortgage approval standards are tightening.

The data comes from a quarterly survey the Federal Reserve sends to its member banks. The Fed asks senior bank loan officers around the country whether "prime" residential mortgage guidelines had tightened in the last 3 months.

For the period July-September 2009:

• Roughly 1 in 4 banks said guidelines tightened
  
  
• Roughly 3 in 4 banks said guidelines were "basically unchanged"
  
  
• Just one bank said its guidelines had loosened.

Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.

Today's borrowers face a host of hurdles including:

• Higher minimum FICO scores
  
  
• Larger downpayment requirements for purchases
  
  
• Larger equity positions for refinances
  
  
• Lower debt-to-income ratios

In other words, mortgage rates may stay low into 2010, but that won't matter to homeowners that don't meet minimum eligibility standards. With each passing quarter, that list gets smaller.

Therefore, if you're on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too.

Acting sooner is probably better than acting later.

FHA Streamline Refinance Program : There's 5 Days Left

Consider this a last call for FHA Streamline Refinances. Starting next Tuesday, the popular rate-lowering program gets strict on borrowers.

There's 5 days left.

Under the current streamline refi guidelines, FHA homeowners have minimal program eligibility requirements.

• FICO scores must be 620 or higher
  
  
• The refinance must provide a "tangible benefit"
  
  
• No mortgage lates allowed in the last 12 months

Beyond that, everything else goes, practically. There's no income, asset, or job verification with the current FHA Streamline program. Neither is there an appraisal requirement. It doesn't matter if you're 50% underwater.

Until next week, that is.

Beginning November 17, FHA Streamline Refinance applicants must show evidence of income and employment, plus proof of cash required to close.

Furthermore, the FHA is limited loan-to-values to 97.75% for homeowners that want to "roll closing costs" into their mortgage.

In areas of declining home values, this may render refinancing impossible.

There's more changes, too, as highlighted by the Federal Housing Commissioner. Read up for yourself, or ask a mortgage professional for help.

If you're a homeowner and you're currently financed through the FHA, it may be prudent to explore the possibility of an FHA Streamline Refi. Mortgage rates are low right now and FHA guidelines are loose.

Starting next week, FHA Streamlines will be a completely different beast.

What's Ahead For Mortgage Rates This Week : November 9, 2009

Mortgage markets were extremely volatile last week, carving out a wide range between Monday and Friday.

Thankfully for rate shoppers, the overall momentum was positive.

Mortgage rates fell for the second time in as many weeks. Rates still sit higher versus their early-October lows.

For pure "news", last week was a busy one:

• The Federal Reserve held the Fed Funds Rate near 0.000 percent
  
  
• The Unemployment Rate crossed 10 percent
  
  
• The First-Time Home Buyer Tax Credit was extended to April 2010
  

Combined, the 3 events reinforced the growing belief on Wall Street that the U.S. economy is in recovery, but not yet out of the woods. This particular philosophy has been excellent for mortgage rates, helping to hold conforming 30-year fixed mortgage rates near 5.250 percent since the start of the year.

It helped rates last week, too. But low rates aren't without threats.

For one, the Fed's vote to hold the Fed Funds Rate near 0.000 percent will eventually spark inflation concerns. When it does, mortgage rates will rise. That won't be this week, though.

Actually, nothing may happen this week -- there's not much data to release. Apart from a retail report, a confidence survey and some Fed speakers, the calendar is bare. That, and Wednesday is a federal holiday.

However, without data, markets often trade on things like geopolitics, or energy concerns, or momentum. In other words, don't be lulled into thinking rates won't change this week.

At least for now, the mortgage rates look good. By the end of the week, that may not be the case.

Congress Expands And Extends The First-Time Home Buyer Tax Credit

Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday.

The White House says the President will sign it into law today.

The up-to-$8000 tax credit's expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.

The program's basic eligibility requirements remain the same:

• Buyers can't purchase the home from a parent, spouse, or child
  
• Buyers can't purchase the home from an entity in which they're a majority owner
  
• Buyers can't acquire the home by gift or inheritance
  
• All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however.

For one, the definition of "first-time home buyer" has been expanded to include most homeowners with at least 5 years in their current home. "Move-up" buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.

This means that you don't have to be a true first-time home buyer to claim the "first-time home buyer tax credit".

Other eligibility changes include:

• The subject property's sales price may not exceed $800,000
  
• The subject property must be a primary residence
  
• Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer

And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction. This means that a tax filer would receive a cash payment of $2,000 from the U.S.

Treasury if his "normal" tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.

The complete list of qualifying criteria is posted on the IRS website. Be sure to review it with a tax professional to determine your eligibility. Then mark your calendar for April 30, 2009.

It's 5 months away.

A Simple Explanation Of The Federal Reserve Statement (November 4, 2009 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy "has continued to pick up" since the September FOMC meeting and that housing market activity has increased.

It's the third consecutive post-FOMC statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the recession is likely over.

The economy isn't without threats, however, and the Fed identified several in its announcement, including:

• Ongoing job losses for American workers
  
• Reduced fixed investment by businesses
  
• Ongoing challenges for the financial markets

The overall tone remained positive, however, as inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.

The Fed plans to wind down its mortgage market support over the next 5 months, reaffirming its March 2010 exit date. For now, Fed support helps hold mortgage rates down.

Mortgage market reaction to the Fed's press release is negative overall. Mortgage rates are rising.

The FOMC's next scheduled meeting is December 15-16, 2009.

Because Of The Federal Reserve, You Should Lock Before 2:15 PM ET Today

The Federal Open Market Committee caps off a scheduled, 2-day meeting today in the nation's capital, its 8th meeting of the year.

The group adjourns at 2:15 PM ET and, as is customary, will issue a press release reviewing its monetary policy and the health of the U.S. economy.

The FOMC's post-meeting statements are brief but comprehensive. They're a window into the mind of the Federal Reserve and Wall Street picks apart every sentence for clues.

It's why FOMC meetings tend to shake up the mortgage markets -- for good and for bad.

After its September 2009 meeting, the FOMC said in its press release:

• Financial markets have improved
• Housing activity has increased
• Economic activity has "picked up"

Since September, the momentum has picked up. Credit risks have reduced further, home sales are surging, and, although unemployment remains high, the Fed remains optimistic about a full economic recovery.

Today's FOMC press release will be closely watched. If the Fed alludes to strong growth with inflation in 2010, mortgage rates should rise. Reference to slower growth should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent -- the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what it does.

If you're floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.