Aug

8

Mortgage Rates: Impact of the Credit Rating Downgrade

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We want to discuss the impact the downgrade of the U.S. credit rating will have on mortgage interest rates. In these times of uncertainty and volatility, no one knows for sure what will happen next. However, we want to talk about possible scenarios.

Mortgage rates normally run parallel to the country’s Treasury bonds. If many people are buying Treasury bonds the return on those bonds decrease. If less people are interested in buying bonds, then the return on those bonds must increase in order to draw more buyers. If bond returns increase or decrease, mortgage rates normally follow.

Many experts feel that the downgrade in the country’s credit rating will cause people to see greater risk and therefore be less likely to invest in our Treasury bonds. That would necessitate returns to push upward as any investor would seek higher returns as compensation for the perceived greater risk. If that happens, mortgage rates will probably increase. Many experts believe this scenario will take place.

However, others believe the exact opposite could happen. If people think the U.S. is struggling financially, they may question the entire world economy. If they do, they might still trust the U.S. bonds over other investments. Then, Treasury bond returns would decrease as demand increases. Mortgage interest rates may actually soften in this scenario.

Bottom Line
Again, no one knows for sure what will happen. Rates could go up, go down or stay relatively unchanged. We will keep you current on any movements in rates.

To all economists and to all who wish they were: We realize this is an oversimplified explanation of a very complicated issue. We attempt to help our readers get a basic understanding of situations that impact the housing market. If you want to share a more complicated explanation, please feel free to comment. – The KCM Crew

Courtesy of KCM

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Jan

13

Will Home Prices Decline in 2011

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The big question facing the Long Island real estate market is, “Will home prices decline in 2011?” I agree with most experts who believe prices will continue to soften for the first half of the year. Supply and demand will determine this. Let’s look at where real estate sits entering this year compared to the beginning of 2010.

Demand

1.) Last year, The Home Buyers Tax Credit was both extended to the end of April and expanded to include move-up buyers. This increased demand to some degree. However, most now believe that the tax credit simply dragged demand forward from later in the year. What took place was a surge in sales prior to the deadline and then a dramatic fall off after April.

This year, there is no such tax credit in place to drive demand. It also seems that there is no political will to revisit a homebuyers’ tax credit at this time.

2.) Last year, the Fed’s purchase of mortgage-backed-securities was extended to the end of March. That increased demand by guaranteeing low interest rates through the first quarter. And economic conditions forced interest rates to new lows even after the Fed backed off the purchases. There was a full six months of historically low rates to bolster demand.

This year, interest rates are rising as we enter January and are projected to continue their upward climb. The National Association of Realtors, the Mortgage Bankers’ Assoc and PMI are all calling for rates to continue to rise through the first half of 2011.

Supply

1.) Last year, the administration was taking the initial steps in implementing a comprehensive loan modification program. This program limited the number of foreclosures coming to the market at discounted prices. It also delayed the entrance to the market of many more distressed properties. According to the OCC and OTS Mortgage Metrics Report, we enter 2011 with “newly initiated home retention actions” down 32.4% from the same time last year.

This year, the administration is touting their new ‘short sale’ program. This will increase the number of distressed properties hitting the market.

2.) Last year, state and local governments were declaring foreclosure moratoriums thereby limiting the number of foreclosures entering their markets. There doesn’t seem to be the same political will to revisit moratoriums in 2011.

This year, though the robo-signing mess will initially delay the entrance of some distressed properties to the market, most believe there will be a wave of discounted properties coming in the first quarter.

CNBC reported on economist Nouriel Roubini’s predictions on this issue:

“There has been an effective moratorium on foreclosure,” said Roubini.

And the beginning of the end of that moratorium means more housing supply is about to become available on the market.

“The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,” Roubini says.

Bottom Line

Without the programs that encouraged buyers last year, I see a steady but slow growth in demand.

Without a strong commitment to limiting distressed properties, I believe that there will be a wave of discounted real estate entering the market in the form of ‘short sales’ and foreclosures.

A limited increase in demand and a surge in supply will equate to lower home prices as we move into the year.

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Dec

30

Questions For Your Mortgage Lender

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More and more, consumers are learning that there is much more to getting a mortgage than just the interest rate and points. As a consumer, here are some questions for your mortgage lender.

A good mortgage planner is more in the advice business than the lowest price business. With tightening guidelines, often the question first is “Will the loan be approved?” But moreover, the borrowers’ concerns need to involve some of the answers to these non-price questions:

1. What type of lender should I use?

There are three basic types of lenders. Mortgage BROKERS promote a broad product menu, competitive pricing, and entrepreneurial approach; however, BROKERS cannot lock, commit, or approve your loan because they are not actual lenders. Banks and Credit Unions rely on financial strength, direct lending capabilities, and stability; however, the have limited product menus and often a “cover my ass” mentality. Mortgage BANKERS blend the best of both- direct lending ability, financial strength and stability, wide product offerings, competitive pricing and the entrepreneurial spirit.

2. What loan products should I be considering?

Make sure your lender has multiple types of products (Conventional, FHA, VA, State Mortgage Agency Products, etc.). While most people today do choose a 30 year fixed, it is not always the wisest choice. Borrowers need to consider how long they will be staying in the home and any changes in their income during that time period before just accepting the same loan as everyone else. Additionally, with many properties in need of some renovations or repairs, you need to explore the FHA 203K Program discussed in last week’s blog.

3. Should I lock or float my interest rate?

Most mortgage planners are trained to dodge this question. I believe you should be hiring an expert who should have an informed opinion about the direction of rates….in the short term and the long term. Weighing numerous factors ranging from your projected closing date to upcoming economic reports, a good mortgage planner can counsel a client into saving money. While no one can predict with absolute certainty, you need to reach a comfort level that the lender you choose has the best information and your best interest at heart.

4. What are mortgage rates based on?

There is only one correct answer. It is the pricing of Mortgage Backed Securities. (Unfortunately, too many people answer the 10-year Treasury Bill.) If you get the wrong answer on this basic question, what else don’t they know?

5. How do economic releases impact rates?

How will a Jobs Report, a Fed Board Meeting or Inflation Number affect your home loan? Your mortgage planner should know, should explain it to you, and keep you informed.

6. Can I improve my chances of approval while keeping costs low?

Sometimes even minor improvements in a credit score, the amount of your down payment, or how you position your assets can make a big difference. During your counseling sessions, your mortgage planner should be advising you on how the “little things can make a big difference’”

Good advice, whether it’s from your doctor, lawyer, real estate agent or lender, can be invaluable. Finding a lender who is an expert….who has your goals in mind…and who offers creative solutions is one of the most important factors in a successful real estate transaction.

By Dean Hartman
Chief Planning Officer
Continental Home Loans

For more information on the mortgage process, please sign up for one of the daily webinars listed below, hosted by Dean.
Every Morning at 10:00

Nightly at 7:00 Registration

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Jun

8

Mortgage Rates Remain Low – Why?

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Mortgage rates remain low after The federal government stops purchases of mortgage backed securities and you might want to ask me why I was wrong about that. I listened to the experts in the industry who said the rates would go up. But this video explains why and the graph below is a direct quote about the markets.

Mortgage Rates Remain Low

Should you have any questions about this or any other topic related to real estate, please feel free to contact me at 631-831-9048.
By Thomas McGiveron, LSA

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Apr

17

What’s Going to Happen to Mortgage Rates: You’re Going to Pay More

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So you’re wondering what’s going to happen to mortgage rates. If you’re a buyer, you’re wondering that because you are trying to figure out how much the cost will rise for your monthly payment. If you’re a seller, you’re thinking about a lot of things and saying to yourself, “I should have sold 3 years ago”. But I digress.

When we look at information available to us, we see that mortgage rates are going to rise and we wonder, how that might impact the Long Island real estate market. Well just like any other market, when rates rise and demand remains lower than supply, prices must drop in order for someone to sell their home.

But let’s really look at the added costs of an increased mortgage rate.

Mortgage Rates

Now this graph is packed with a lot of different information about mortgage rates.

The Impact On Buyers
Well first thing you must realize is that in order for you to buy a home and pay about the same price per month for that home as the rate goes up, you’ll notice that the price of the loan must go down significantly. Let’s say you’ve been looking for a while and you see a few houses or one in particular that you love. But for some reason, you’ve held back for reasons such as…well to put it bluntly, fear.

Let’s face it, this economy has many people a little uneasy about the future. So you hold back for whatever reason, you want to wait until you get married, you need to “save more for the down payment”, prices are still too high, taxes are too much, the dining room is too small, and on and on.

Well look at that graph and ask yourself this: Do you honestly believe that this house you’ve seen or these few houses that are “potentials” will be there 10% from now? What I’m saying you to ask yourself is, will this same house or houses be on the market for sale 5 months from now when rates are quite possibly 1 full percent higher than they are now? Maybe. But more than likely, if you’ve got your eye on a nice house that you really like or love, chances are so does someone else. And if they’re a little less afraid than you, guess what, they’re buying it.

Another thing for buyers to look at is simply the savings. Paying 6% on a loan as opposed to paying 5% on a mortgage rate is a no brainer. You will save more money. And again, this graph is based on prices dropping as the rate goes up. Just because the rates goes up, doesn’t mean that the home(s) you like has to sell (or can sell for that matter – given the likelihood that they have a mortgage to pay off).

The Impact On Sellers
The cold harsh reality of the market is that prices are going to continue to see-saw in a downward spiral. Every economic and real estate expert out there predict a further decline in prices. Here on Long Island, the simple curve of supply exceeding demand will absolutely keep prices from appreciating for the near future (6 to 18 months).

With the flow of homes off and back on the market and increases in foreclosures, this extra supply, as it comes in waves, will continue to keep prices from going up.

Now this graph adds an element that is not seller-friendly. Historically, a 6% mortgage rate is incredibly good. However, given the current economic situation, decreased consumer spending and high unemployment (currently over 7% on Long Island), a 6% rate might as well be 8 or 9% in a “normal economy”.

Buyers on Long Island, with the high taxes and cost of living that exceeds about 90% of the rest of the country, living here isn’t cheap and many buyers don’t have $80,000 to buy a modestly priced home of $300,000. Remember, the standard, “good loan” for a home is 20% down (on $300,000 that’s $60,000) and the other $20,000 is for the very high closing costs associated with buying on Long Island.

So looking at the graph, as the mortgage rate goes up, if you need to sell, you will absolutely be forced to drop your price as the rate goes up. There is no question about this. Why? Because the buying market won’t have buyers to purchase your home at a 6% mortgage rate at the current prices of today (April 2010). And please note, that I’m not even mentioning the home buyer tax credit that is expiring in 2 weeks that’s helping home values remain somewhat stable. Without that, prices will drop.

But there’s definitely hope in that if you hire the right agent, who uses cutting edge technology to market your home, buyers will check out your home more often than just having it sit idle on mls, overpriced. Oh by the way, that “right agent” – that’s me – click here and let’s get started!

So What About The Mortgage Rate Anyway?

Let’s look at what experts are saying.

Where are mortgage rates going

From Moody’s Economy.com to Credit Suisse to Barclay’s Capital, we see that the experts are predicting increased mortgage rates. Why? Read my article on what’s happened in the last month with the Fed.

National speaker and residential real estate guru, Steve Harney, talks about how since 2006, April to July months have seen mortgage rate volatility.

mortgage rates

So to close this discussion out, I think it’s particularly important for buyers and sellers to consider their options. Information like this is invaluable and I hope it helps you make the best decisions for you and your families. If you have any questions at all, I can always be reached at (631)831-9048.

By the way, if you missed the commission discount I’m offering for home sellers, please click here.

(c) Copyright, 2010 www.tommcgiveron.com
By Thomas McGiveron, Licensed Real Estate Salesperson
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