Foreclosures And Short Sales Distorting “Home Price Trackers”

David Kosmecki | May 6, 2011 in Housing Analysis | Comments (0)

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HPI Monthly Changes From April 2007 Peak

In an echo of February’s Case-Shiller Index report, the government’s own home price-tracker — the Home Price Index — showed home values slipping between January and February 2011.

The Federal Home Finance Agency data had home values down 1.6 percent nationwide in February, on average, marking the fourth straight month in which prices fell. 

Furthermore, all 9 regions posted losses from the month prior:

  • Mountain Region : -3.7% from January
  • East South Central : -0.6% from January
  • South Atlantic : -0.9% from January
  • New England : -2.0% from January

Before you draw conclusions, however, note that the data at which we’re looking has several major flaws to it.

First, it’s old. We’re now in the first week of May and the FHFA’s most recent release only covers through February, a time period ending roughly 60 days ago. That’s a long delay and today’s purchase market in Maple Grove looks much different from the one of February. 

Just ask a real estate agent and they’ll tell you — purchase activity is rising.

Second, the FHFA Home Price Index reports on home value changes between consecutive Fannie Mae or Freddie Mac-securitized transactions only. This might be creating an overweight of “distressed properties” in the index which, in turn, drags down valuations.

Distressed homes account for 40% of all home resales and typically sell at 20 percent discounts.

And, lastly, although the Home Price Index is a national report, real estate as a market is decidedly not national. To the contrary, it’s extremely local. As an individual, you don’t buy, sell or own homes in all 50 states. You buy them in a specific state, and a specific neighborhood. 

The national data is useless to you in that respect.

We can’t discount the Home Price Index data entirely, but should remember that it paints a clearer picture of where housing has been versus where housing is going. As a home buyer or homeowner, it’s the future of home values that matters more.


Market Insights

David Kosmecki | May 4, 2011 in Mortgage Rates,Statistics,Wall Street | Comments (0)

Market Insights - 5/4/2011 

7 days: LOCK.

7-15 days: FLOAT.

15-30 days: FLOAT.

30+ days: FLOAT. 

The April ISM services sector index out this morning was much weaker than had been expected, at 52.8 down from 57.3 in March; expectations were for an unchanged reading. The new orders component fell from 64.1 To 51.9, the biggest monthly decline since the ISM data was originated in 1997. The reaction was as one would have expected, the 10 yr note slashed through the psychological 3.25% level without hesitating, the DJIA fell over 115 points and the other indexes dropped with it. Crude oil fell again on increased supplies and lower demand outlook, gold and silver continued their declines.

For weeks we have been hearing from most analysts (bullish and bearish) that the stock market was likely to turn down with economic forecasts being revised lower. Every time the stock market has looked like it would cave a little after a couple of days buying resumed and indexes continued onward higher. Is this time the one that breaks it? This morning’s ADP employment estimate for private non-farm jobs was less than widely thought, +179K against estimates of 200K; it is the lowest job growth estimate from ADP this year. 

A month ago it was “conventional wisdom” in the markets (us included) that US interest rates were going to edge higher through the rest of the year. No less than highly respected bond funds like PIMCO were actually shorting US bonds. So much for wisdom that lasts no longer than the next data point. Over the past month (since 4/7) the 10 yr note yield has fallen 37 basis points and mortgage rates down 28 basis points. We did maintain floating all but loans to close in 5 to 7 days, but we were in the camp that rates would increase. Now, after the recent declines we want to abandon our outlook for 4.00% on the 10 yr, but we still believe that as we move into the second half of the year rates will increase, however not as likely to hit 4.00%. 

Most recent economic reports have been anemic to lower than what had been forecasts, detailed reports from various private economists have been negative but most were ignored or not taken seriously until now. The NFIB monthly detailed report last month showed small business optimism decline back to levels not seen since last Oct. Bernanke has continually warned of the weak under-pinning’s in the economy and reiterated the Fed would keep rates low for at least the next 3 to 4 months, or as long as the economy struggles with high unemploymentand inflation is subdued.

A huge continuing decline in commodity prices today; gold, silver, copper, oil and many others. Stock market looks very weak, the economic outlook being revised lower; the dollar stabilizing momentarily. Much of the speculating in commodities is being erased.

Inflation outlooks had also been increasing for the past month or so, now with the weaker growth outlook inflation fears have lessened; although we are not willing to overlook the potential as long as commodity prices remain high and inflation around the world is increasing.

Friday the April employment report is still expected to show non-private private jobs up 200K, anything less than that will likely add to the new building belief US economic outlook is weakening and push stocks lower and support the bond and mortgage market. Tomorrow weekly unemployment claims are expected to have declined to 400K from 429K last week; claims have risen in the last few weeks after falling to 382K, another increase tomorrow would be a stab in the heart for economic bulls. The claims data tomorrow is not data included in Friday’s employment data, that data is accumulated up to the end of the first two weeks of the month.

PRICES @ 4:00 PM

10 yr note:                103.12 +8/32 3.22% -3 bp

5 yr note:                  100.09 +1/32 1.94% -1 bp

2 Yr note:                 100.02 +1/32 0.59% -2 bp

30 yr bond:               107.02 +13/32 4.33% -3 bp

Libor Rates:              1 mo 0.209%; 3 mo 0.270%; 6 mo 0.428%; 1 yr 0.756%

30 yr FNMA 4.0 May:   99.30 +6/32 (.18 bp) (+5/32 (.15 bp) frm 9:30)

15 yr FNMA 3.5 May:   101.14 +3/32 (.09 bp) (+4/32 (.12 bp) frm 9:30)

30 yr GNMA 4.0 May:   101.26 +7/32 (.22 bp) (+8/32 (.25 bp) frm 9:30)

15 yr GNMA 3.5 May:   103.00 +3/32 (.09 bp) (+4/32 (.12 bp) frm 9:30)

Dollar/Yen:                   80.60 -0.37 yen

Dollar/Euro:                  $1.4833 +$0.0013

Gold June:                   $1515.10 -$25.30

Crude Oil June:            $108.89 -$2.16

DJIA:                            12,723.58 -83.93

NASDAQ:                     2828.23 -13.39

S&P 500:                     1347.32 -9.30


Benefits of a REALTOR®

David Kosmecki | April 28, 2011 in Home How To,Real Estate Definitions | Comments (0)

Simply put, a Realtor® acts as a liaison between sellers and buyers of different types of real estate. Generally, Realtors® assist in the closing process of the sale or purchase of a home and give advice about the property.

A Realtor® is a crucial part of the purchasing process in part because they help you determine your true buying ability. After evaluating some of your basic financial information your Realtor® then helps you understand different financing options and refer you to qualified lenders for pre-approval. This is important especially for people who are not entirely familiar with the mortgage industry and programs provided.

Realtors® generally like to offer a wide selection of properties, within your specified criteria, for you to choose from. An experienced Realtor® will also provide you with extensive resources and educated advice to help you in your efforts to buy or sell. Part of a Realtor’s® job is to research and learn about the neighborhoods they work in and around, therefore they’re qualified to assist you in narrowing your choices and providing diligent information on local communities. He or she will provide you with objective and valuable insight.

When it comes to determining the best possible price, financing, and terms your Realtor® will help you negotiate and establish a deal that works best for you. They will then guide you through the closing process to make sure everything goes smoothly.

You will also receive up-to-date information on what is happening in the marketplace such as the pricing, financing, terms and condition of competing properties from your Realtor® when selling your home. They know when, where and how to market your home and will monitor potential buyers to help you objectively assess buyers’ bids and avoid any potential snares.

It should be reassuring to know that Realtors® subscribe to a strict code of ethics, have access to plenty of resources for you and can help with the entire closing process.


Holiday Decor, Creative Selling Approach

David Kosmecki | in Consumer Confidence,Existing Home Sales,Home How To,New Home Sales,Retail Sales,The Economy | Comments (0)

This time of year may increase the amount of home-buyer interest just as much as toy store coupons and department store sales attract holiday shoppers’ interest. The increase is due to tasteful holiday decorations that light up prospective buyers’ eyes. 

If your home is on the market and you’re looking to sell during or right after the holidays, try to decorate with a warm, elegant theme. The trick is to decorate enough to allow prospective buyers to envision a house they can decorate similarly, but not to over-decorate so much that they can’t imagine themselves living there.

Here are a couple hints for decorating your home perfectly for prospective buyers:

Work with what you have.
Pay close attention to the color, design, layout, and age of your home. Match decorations with the overall ambiance to create a cohesive and flowing feel for the holidays.

Be mindful of sizes.
A huge blow-up snowman on a small lawn will look out of place and make the house and landscape seem smaller than it is. Likewise, don’t put large wreaths on small doors, gigantic trees in small rooms etc.

Lights equal action.
Setting a pathway of lights up the walkway to the door is a simple yet elegant way to greet visitors and potential buyers. It can give off a preconceived notion of what to expect inside.

Go Au Natural.
Natural-looking decorations and color schemes are fashionable. Use a more organic palette with greens, golds and ambers. Make use of natural and creative materials like berries, twigs and acorns.


Economic Optimism

David Kosmecki | in Consumer Confidence,Jobs,Mortgage Rates,The Economy | Comments (0)

Happy New Year!!!  As we closed out 2010, “” has been the phrase that has carried on to the new year.  Although slow, optimism continues to climb in recent months.  With this growing optimism, rates have increased slightly, but still remain at record lows.  In fact, rates today are nearly 0.375% lower than they were in the beginning of 2010.  

To start the new year, US Manufacturing was reported to increase in December to a 7 month high, which fed this optimistic view for 2011.  The S&P 500 was up ~1.4% on the day on this news.  

The week ahead is pretty busy in terms of economic releases, and the general consensus is for continued improvement.  Any news that doesn’t point toward continued growth could cause a reduction in rates.  Minutes from the Fed meeting should be released tomorrow, along with Factory orders and Auto Sales.  ADP and Challenger will release employment changes on Wed.  And finally, Friday brings the biggest piece of economic data, with the Labor Department’s release of monthly employment data.  After last week’s jobless claims came in lower than expectations, some analysts expect slightly more jobs created than in earlier predictions.  With these types of expectations, if the new jobs number comes in under 100K for December, we’ll see some disappointment in the market, but it may help lower mortgage rates again.


Mortgage Application Volume Increases

David Kosmecki | in FHA Mortgages,Foreclosures,Jobs,Rankings,The Economy | Comments (0)

Last week, we saw mortgage application volume start to increase again as people returned from the holidays. Most of the economic attention fell on Employment figures for December. On Wednesday, ADP showed a much more positive employment change than expected, which sparked a rally in equities. This raised expectations for Friday’s payroll numbers, which didn’t meet those expectations. This sparked a drop in interest rates which was then propelled by a landmark ruling in Massachusetts, where the court ruled against several large banks and their foreclosure practices. The ruling means that more scrutiny will likely fall on banks nationally to be sure that all legal items are in order prior to starting any foreclosure proceedings. As for prior foreclosures, banks face challenges ahead as they deal with the risk of foreclosures being overruled by courts across the country. Thousands of foreclosures may be affected in Massachusetts alone. For this reason, bank stocks were noticeably lower on Friday.

As we head into the coming days and weeks, Fannie Mae and Freddie Mac announced that the cost of insuring loans with higher loan-to-value ratios is increasing, along with the cost of loans that have both a first and second lien (rather than just a single lien). This cost should make its way to borrowers in the coming days and weeks, and could mean as much as a 0.25% higher rate for certain loans among every lending institution across the country. Mortgage applications have been slightly higher in recent days, with borrowers looking to avoid these upcoming costs.

Today, news from Portugal and its possible need for EU economic relief has sparked a slight drop in mortgage rates as international investors seek shelter and stability with Treasuries and Mortgage investments. For the remainder of the week, most attention will be turned to fourth quarter company earnings that will begin to be released, along with inflation figures later in the week.


Homebuyer’s Checklist

David Kosmecki | in Credit Scoring,FHA Mortgages,New Home Sales | Comments (0)

Whether you’re a novice or an expert when it comes to home buying, there’s always a checklist that should be reviewed before the big decision. Skim over the below tips to be sure you’re prepared for the buy.

We might sound like a broken record, but, credit score, credit score, credit score!
The higher your credit score, the more likely you are to become preapproved. Not to mention, your total down and monthly payments will be lower with a higher credit score. When credit scores are too low, a higher down payment and other fees may apply. You can improve your home-buying chances by requesting your credit reports and verifying all the information. 

How much house is too much house?
In your new home, you’ll not only want to be physically comfortable, but financially comfy as well. Check out our calculators to find out how much home you can afford and which type of financing is right for you. Play around with different calculators to learn the differences and benefits of FHA, conventional and jumbo loans as well!

A penny saved is a penny earned.
Generally, you’ll want to have saved enough to put down anywhere from 3.5%–20% of the home you want to buy. Start saving your money and stop applying for credit about a year before your apply for financing. Take into account any maintenance and repair you plan – or don’t plan – on paying for when you move in to your new home.


Companies’ Earnings Point Toward Economic Recovery

David Kosmecki | in Consumer Confidence,Existing Home Sales,Jobs,The Economy | Comments (0)

Mixed news pervaded the markets last week as we saw mortgage rates fall, rise, and end the week roughly where they started. Housing showed some positive signs, with existing home sales climbing 12.3% last month, and inventory levels dropping to 8.1 months of available homes at the current rate of sale. Jobless claims had previously spiked with more post-holiday cutbacks than expected, but have since fallen, and show a strong 4 week improvement overall.

With companies continuing to release 2010 earnings, signs have generally pointed toward economic recovery. Earnings releases are expected to continue heavily through the end of the week. Along with this, a flurry of news and economic data is being released. S&P will kick things off tomorrow, releasing its figures for November Home Prices. Following this, attention will focus on New Home Sales, Consumer Confidence, the President’s State of the Union address, and the Federal Reserve’s first meeting of the year. Although no change in monetary policy is expected, many will look for the Fed’s view on continuing their Quantitative Easing program, supporting the purchase of Treasuries and Mortgage-Backed Securities in an effort to foster lower rates and economic growth. Toward the end of the week, Durable Goods orders, fourth quarter GDP, and unemployment figures will be released.

Overall, look for some possible volatility in interest rates as the market digests all this new data & news. When analyzing this data, many will continue to focus on the impact on employment and the labor market……a critical driver for future economic growth.


Unemployment Figures and Turmoil in Egypt

David Kosmecki | in The Economy | Comments (0)

Early in the week, rates hiked slightly as Chinese and U.S. manufacturing growth came in better than expected, and ADP projected some strong private sector job growth. Turmoil in Egypt did cause some fluctuation around rates last week, with concerns subsiding right before they would flare up again. Overall, this turmoil did help spark interest in U.S debt and keep rates slightly lower throughout the week. The latter half of the week was relatively quiet with the country reacting to one of the biggest storms in recent record. The volume of mortgage locks was light, with the lack of supply also helping maintain lower rates.

At the end of last week, however, we received some staggering news that January unemployment dropped to 9.0% vs an expected increase to 9.5%. Rates only increased slightly at first as analysts attempted to understand how this was possible considering that initial reports indicated only 36,000 jobs being created last month. Some are now claiming they expect these job figures to be revised substantially higher in the coming weeks. Rates opened the week a touch higher once again as the market continued to account for this positive employment data, coupled with reduced tensions in Egypt and strong earnings reports out of Europe.

The remainder of the week has fewer economic reports, but is full of other news that may easily drive rates. Egypt continues to draw attention, a spattering of U.S. corporations continue to release year-end earnings, a member of the Fed is scheduled to speak each day this week, and the Treasury has scheduled auctions totaling $72 billion this week.

One thing to keep an eye out for: Some suspect that the government will issue a report discussing the future of the Government Sponsored Enterprises (GSE’s). Namely Fannie Mae and Freddie Mac, these organizations have shaped mortgage origination for the last several decades. If this report is released, expect interest rate volatility as people digest the overall structure and role the government might take in insuring mortgages in the years to come.


Economy Gaining Steam

David Kosmecki | in The Economy | Comments (0)

Mortgage rates were a bit of a rollercoaster last week. To cut to the chase, rates are lower out of the gate compared to nearly all of last week.

News that pressured rates higher included another drop in weekly unemployment claims, along with an increase in consumer confidence. Labor reports continue to point toward the U.S. . Reports in Asia also point toward improving manufacturing and exports.

News pulling rates back down was primarily the proposed reform of Government Sponsored Enterprises, as well as continued tensions in Egypt, causing investors to opt for the relative safety of U.S. government debt.

When the Treasury released their white paper on proposed reform of Government Sponsored Enterprises (namely Fannie Mae and Freddie Mac), the proposal indicated that the Government take a smaller role in the mortgage market over the long term, which most notably included raising the cost to insure mortgage backed securities for investors. By raising this cost, the intent is to stimulate more private investment and support for the mortgage market, with the government only targeting a 40% share (vs. close to 100% currently). The result was a drop in interest rates, not only because there was some long awaited transparency with what to expect, but investors also see stronger performance with the loans originated under the current structure. Expect more to take shape here in the coming months.

To start the week, eyes are on the White House’s 2012 budget proposal, and the resulting impact on economic growth. Rumors currently range from small to broad-based cuts to bring the budget deficit within control (the 2011 deficit is expected to reach $1.65 trillion, the largest amount in history). The remainder of the week brings us several important releases, including minutes from last week’s Fed meeting, Retail Sales, and Consumer and Producer Price Indices. Not to mention, the markets will continue to keep a watchful eye on tensions in the Middle East.

Keep an eye for any news regarding the Fed’s “Quantitative Easing” (QE2) plans. With the , pressure continues to fall on the Fed to potentially cut short their plan to purchase the remaining ~$300 billion Treasuries of the initial $600 billion plan. This could create some upward pressure on rates.