April, 2011 | Arizona Mortgage

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Archive for April, 2011

Inflation Pressures Mounting; Mortgage Rates Rising

Consumer Price Index (March 2009 - February 2011) Inflation pressures are mounting in the United States. And, Friday, the Consumer Price Index should prove it.

More commonly called “The Cost of Living Index”, CPI measures cost changes in the typical items bought by American households. Among others, CPI measures goods and service in apparel and recreation; medical care and education; and housing and transportation.

The March CPI data is expected to show an increase in the cost of living for the 17th straight month — a reading that would take CPI to an all-time high.

If you’ve filled your gas tank, sent a child to school, or shopped for groceries, you’re likely not surprised. Household budgets have been squeezed from all angles lately. The dollar’s purchasing power is waning.

This is inflation, defined. And a weaker U.S. dollar is bad for mortgage rates.

The connection between the U.S. dollar and mortgage rates is direct. When inflation pressures rise, mortgage rates in Phoenix tend to rise, too, because mortgage rates are based on the price of mortgage-backed bonds — a security bought, sold and paid in U.S. dollars

Inflation, in other words, renders mortgage bonds less valuable to investors, all things equal, so investors sell them as inflation pressures grow. More sellers leads to lower prices which, in turn, causes mortgage rates to rise.

It’s why March’s Cost of Living data is so important to rate shoppers and home buyers. Higher levels of CPI can harm home affordability, and stretch your household budget uncomfortably.

As Memorial Day approaches, gas prices are projected to spike, offering little relief from the inflationary pressures in the economy. It’s one reason why mortgage rates should trend higher over the next few months.

If you’re wondering whether to lock or float your mortgage rate, consider locking in. At least today’s rates are a sure thing. Tomorrow’s rates could be much higher.

Get Your Applications In : FHA Mortgage Insurance Premiums Rising 0.25 Percent April 18, 2011

FHA Mortgage Insurance Changes

After this week ends, the FHA is raising mortgage insurance premiums on its new Phoenix borrowers. It’s the FHA’s third such increase in the last 12 months.

Beginning with FHA Case Numbers assigned April 18, 2011, mortgage insurance premiums will be higher by 25 basis points per year, or 0.25%.

Against a $200,000 loan size, the MIP increase adds $500 to an FHA-insured borrower’s annual cost of homeownership. All new FHA loans are subject to the increase — purchases and refinances.

Existing FHA-insured homeowners across AZ are unaffected. Premiums do not rise for loans already made.

The FHA is increasing its mortgage insurance rates because, as a group, the FHA is insuring a much larger percentage of the U.S. housing market.

In 2006, the FHA held a 4 percent market share. By 2010, that share ballooned to 19 percent and, today, it’s estimated to be even higher.

In its official statement, the FHA says that the quarter-point MIP bump will “significantly strengthen” its reserves which are depleted because of delinquencies and defaults. By law, the FHA’s capital reserves must meet certain levels.

Therefore, to meet these requirements, the FHA is rolling out its new mortgage insurance premium schedule:

15-year loan term, loan-to-value > 90% : 0.50% MIP per year
15-year loan term, loan-to-value <= 90% : 0.25% MIP per year
30-year loan term, loan-to-value > 95% : 1.15% MIP per year
30-year loan term, loan-to-value <= 95% : 1.10% MIP per year

In order to calculate what your FHA monthly mortgage insurance premium would be, multiply your beginning loan size by your insurance premium in the chart above, then divide by 12.

The FHA also charges a 1 percent, up-front mortgage insurance premium at closing. That figure remains unchanged.

Retail Sales Report Should Spell Higher Mortgage Rates For Wednesday

Retail Sales Rising -- 8 Straight Months

Consumer spending is alive and well, it seems — unwelcome news for today’s home buyers.

Wednesday, the Census Bureau will release its March Retail Sales figures and the report is expected to show higher sales receipts for the 9th straight month. A strong reading like that should spell higher mortgage rates in Scottsdale and nationwide.

The connection between Retail Sales and mortgage rates is fairly tight. Retail Sales are “consumer spending” and consumer spending accounts for the majority of the U.S. economy. The U.S. economy, of course, is a dominant force in setting the direction in which mortgage rates are headed.

For example, in 2010, it was a weak economy and murky outlook that helped drive mortgage rates to all-time lows. Since last year, however, the jobs market has started its recovery, monthly receipts have returned to all-time highs, and the Federal Reserve is revising growth estimates for 2011.

Not surprisingly, mortgage rates have reversed, too.

As compared to 6 months ago, conforming rates are higher by 0.750%. Home affordability across Arizona is taking a hit. Plus, the stronger the economy appears to be, the more likely for mortgage rates to climb more.

It’s why tomorrow’s Retail Sales report is so important.

If you’re under contract for a home, or even evaluating the merits of a refinance, there’s a lot of risk in “floating” your mortgage rate. The more prudent plan is to find a rate at which you’re comfortable with the payment, and lock it in.

And you may want to take that lock sooner than you had planned — if only to protect your monthly payments. Once tomorrow’s Retail Sales report hits, it may be too late. Especially if receipts rise for the 10th straight month.

The Retail Sales report is due for release at 8:30 AM ET.

What’s Ahead For Mortgage Rates This Week : April 11, 2011

Inflation squeezes mortgage rates Mortgage markets worsened last week as energy costs remained high, and jobs data looked strong. The safe haven buying that characterized the March mortgage market has subsided.

it’s driving mortgage rates higher across Arizona.

Conforming and FHA mortgage rates rolled back 8 weeks worth of improvements last week and are now back to mid-February levels. The rise in rates is hurting refinance activity and home affordability.

The biggest story from last week figures to carry forward into this one — the Federal Reserve’s take on inflation.

In the minutes from its March meeting, the FOMC was shown to have discussed the possibility of raising the Fed Funds Rate ahead of schedule, and to be watching near-inflation closely. Both developments are in response to a growing economy with rising price pressures.

Mortgage rate shoppers should take note.

Inflation is a mortgage-rate killer. When inflation is present in the economy, all things equal, mortgage rates rise. Sometimes by a lot. And, usually, just the expectation of inflation is all it takes to make mortgage rates jump.

That’s what we saw last week.

This week, keep a close watch on new inflation-related data set for release. This includes Tuesday’s Retail Sales data, Wednesday’s Producer Price Index, and Thursday’s Consumer Price Index. Each release can potentially move mortgage rates although, if recent trends are an indication, expect for rates to rise.

Mortgage rates in Mesa remain historically low. If you’re shopping for a mortgage, consider locking as soon as you can.

Military Members : You Have 3 Weeks To Buy A Home, Claim Up To $8,000 In Tax Credits

Military tax credit expiration If you’re an eligible federal employee or qualified military personnel, you have 3 weeks from this Saturday to use the federal home buyer tax credit, and to claim up to $8,000 in federal income tax credits.

According to the IRS, eligible persons include members and spouses of the uniformed services, members and spouses of the Foreign Service, and intelligence community employees who served at least 90 days of qualified, extended duty service outside of the United States between January 1, 2009 and April 30, 2010, and their spouses.

Eligible persons must be under contract for a new home on or before April 30, 2011, with the home’s closing occurring on or before June 30, 2011.

The federal home buyer tax credit is a true credit, too. Eligible buyers receive a dollar-for-dollar tax reduction equal to 10 percent of the subject home’s purchase price, not to exceed $8,000 for first-time home buyers, and not to exceed $6,500 for repeat home buyers.

Repeat buyers must have lived in their “main home” through 5 of the last 8 years in order to be eligibke.

Furthermore, both the buyer(s) and the subject property must meet certain minimum eligibility requirements:

The home may not be purchased from a parent, spouse, or child
The home may not be purchased from an entity in which the seller is a majority owner
The home may not be acquired by gift or inheritance
The home sale price may not exceed $800,000
Buyers may not earn more than $125,000 as single-filers; $225,000 as joint-filers

The complete program description is published on the IRS website.

For additional information regarding your tax credit eligibility, you may want to speak with an accountant or other tax professional. It’s often worth the cost.

How Does Your Real Estate Tax Bill Compare To Other Parts Of The Country?

Real Estate Taxes compared to local household income

Mortgage rates may be a function of free markets, but real estate taxes are a function of government. And, depending on where you live, your annual real estate tax bill could be high, low, or practically non-existent.

Compiling data from the 2009 American Community Survey, the Tax Foundation, a non-partisan educational organization in Washington D.C., published property taxes paid by owner-occupied households, county-by-county.

The report shows huge disparity in annual property taxes by region, and by state.

As a percentage of home valuation, Southeast homeowners tend to pay the fewest property taxes overall, while Northeast homeowners tend to pay the most. But statistics like that aren’t especially helpful. What’s more useful is to know how local real estate taxes stack up as compared to local, median household incomes.

Not surprisingly, real estate taxes are least affordable to homeowners in the New York Metro area. The 10 U.S. counties with the highest tax-to-income ratios physically surround New York City’s 5 boroughs. The areas with the lowest tax-to-income, by contrast, are predominantly in southern Louisiana.

A sampling from the Tax Foundation list, here is how select counties rank in terms of taxes as a percentage of median income:

#1 : Passaic County (NJ) : 9.7% of median income
#6 : Nassau County (NY) : 8.6% of median income
#15 : Lake County (IL) : 7.2% of median income
#18 : Cheshire County (NH) : 7.1% of median income
#70 : Travis County (TX) : 5.0% of median income
#90 : Marin County (CA) : 4.6% of median income
#110 : Middlesex County (MA) : 4.4% of median income
#181 : Sarasota County (FL) : 3.9% of median income
#481 : Douglas County (CO) : 2.4% of median income
#716 : Maui County (HI) : 1.3% of median income

The U.S. national average is 3.0 percent.

The complete, sortable list of U.S. counties is available at the Tax Foundation website. For specific tax information in your neighborhood or block, talk with a real estate agent.

March Fed Minutes Show Inflation Risks And Rate Hikes On The Horizon

Fed Minutes March 2011 The Federal Reserve released its March 15 meeting minutes Tuesday. The notes revealed a Federal Reserve split between optimism and caution for the U.S. economy.

The minutes’ official name is “Fed Minutes”. It’s a periodic publication, published 3 weeks after each meeting of the Federal Open Market Committee. The FOMC meets 8 times annually, so the Fed Minutes is published 8 times annually, too.

The Fed Minutes is similar to the meeting minutes released after a condo board gets together, or after a meeting of the Board of Directors at a large corporation. The minutes give a detailed account of the important conversations and debates that occurred among the attendees.

At the Federal Reserve, those conversations are deep and, as such, the minutes are long; much longer than the more well-known, post-meeting press release anyway.

Whereas the press release is measured in paragraphs, the minutes are measured in pages.

Here is some of what the Fed discussed last month:

On inflation : Pressures are rising, but largely because of food costs and oil costs.
On housing : The market remains “depressed” with large inventory and weak demand.
On stimulus : The Fed will keep its $600 billion bond plan in place.

In addition, there was talk about ending the Federal Reserve’s accommodative monetary policy (i.e. the near-zero percent Fed Funds Rate). The FOMC’s voting members unanimously elected to leave the Fed Funds Rate near 0.000 percent last month, but there was talk of raising the benchmark rate later this year.

Conforming and FHA mortgage rates in Mesa are mostly unchanged since the Fed Minutes release.

Plan To Sell Within 5 Years? Consider An Adjustable-Rate Mortgage.

Comparing 5-year ARM to 30-year fixed

Which is better — a fixed-rate mortgage or an adjustable-rate mortgage? It’s a common question among home buyers and refinancing households in AZ.

The answer? It depends.

Fixed-rate mortgages give the certainty of a known, unchanging principal + interest payment for the life of the loan. This can help you with budget-setting and financial planning. Some homeowners say fixed-rate loans they offer “peace of mind”.

Adjustable-rate mortgages do not.

After a pre-determined, introductory number of years, the initial interest rate on the note — sometimes called a “teaser rate” — moves up or down, depending on the existing market conditions. It then adjust again every 6 or 12 months thereafter until the loan is paid in full.

ARMs can adjust higher or lower so they are necessarily unpredictable long-term. However, if you can be comfortable with uncertainty like that, you’re often rewarded with a very low initial interest rate — much lower than a comparable fixed rate loan, anyway.

Freddie Mac’s weekly mortgage survey highlights this point.

The interest rate gap between fixed-rate mortgages and adjustable-rate mortgages is growing. It peaked 2 weeks ago, but remains huge at 1.16 percentage points.

On a $200,000 home loan, this 1.16 FRM/ARM spread yields a monthly principal + interest payment difference of $136, or $8,160 over 5 years, the typical initial teaser rate period.

Savings like that can be compelling and may push you toward an adjustable rate loan.

You might also consider a 5-year ARM over a fixed-rate loan if any of these scenarios apply:

You’re buying a new home with the intent to sell it within 5 years
You’re currently financed with a 30-year fixed mortgage and have plans to sell the home within 5 years
You’re interested in low payments, and are comfortable with longer-term payment uncertainty

Furthermore, homeowners whose existing ARMs are due for adjustment might want to refinance into a brand new ARM, if only to push the teaser rate period farther into the future.

Before choosing ARM over fixed, though, make sure you speak with your loan officer about how adjustable rate mortgages work, and their near- and long-term risks. The payment savings may be tempting, but with an ARM, the payments are never permanent.

What’s Ahead For Mortgage Rates This Week : April 4, 2011

Unemployment Rate 2008-2011 In a volatile week of trading, mortgage markets closed unchanged last week. Despite economic data proving stronger-than-expected — a situation that tends to lead mortgage rates higher — concern for persistently high oil prices tempered Wall Street’s excitement and mortgage rates stayed steady.

That’s not to say rates weren’t volatile, however. From day-to-day, mortgage rates showed huge variance last week and several lenders issued five separate rate sheets Friday.

The 12-month average is slightly less than two per day.

Expect the volatility to continue into this week, too. With little economic data due for release, mortgage rates should move on momentum. This would be good news for rate shoppers and home buyers throughout Arizona because mortgage rates ended last week on a downswing.

It’s all because of the March jobs report.

The jobs report is important to the economy because as the number of working Americans grows, so does total earned wages nationwide. In theory, this leads to higher levels of consumer spending, and to larger government tax receipts.

It starts a cycle in which businesses and governments additional workers and the cycle continues.

The U.S. economy added jobs in March for the sixth straight month.

Mortgage rates are 0.69% higher today as compared to their early-November 2010 lows. The jump has added 14 percent to the 30-year, long-term cost of homeownership in Mesa. However, as compared to history, rates remain low.

If you’re currently shopping for a mortgage, talk to your loan officer about today’s market and its risks. Rates may not rise this week, but they’re poised to surge along with the economy. Consider locking in today.

How Does Your Work Commute Compare To Other Cities?

Average Commute Times In The US, By County

As part of the Census Bureau’s data collection activities from 2005-2009, a number of interesting charts have been published at http://census.gov.

The data should not be confused with Census 2010 — a separate survey conducted every 10 years. This is the first-ever, 5-year American Community Survey. Based on data from 3 million households, it details social, economic, housing, and demographic data “for every community in the nation“.

Among the surveys:

Median Household Income, Inflation-Adjusted To 2009 Dollars (Chart)
Median Housing Value Of Owner-Occupied Housing Units (Chart)
Percent Of Households That Are Married, With Children Under 18 (Chart)

The ACS survey also charts average commute time by county. The chart is shown at top.

Whether you live in a “long commute” town like Richmond, NY (40 minutes), or a “short commute” town like King, TX (3.4 minutes), rising gas prices have made commute times and distances relevant to everyone.

Since the start of 2011, the average price for gasoline is higher by 54 cents per gallon. Assuming 22 miles per gallon on a passenger car, that’s an increase of 2.5 cents of gasoline per mile driven in the last 90 days. It’s a cost that adds up quickly, and can affect a household budget. Plan for higher pump prices moving forward, too. Historically, gas prices surge between April and June.

The American Community Survey is loaded with charts and data. It can tell you a lot about your current neighborhood, and any neighborhood to which you may want to relocate. Then, to bridge the ACS data with community details such as school performance and typical home prices, talk to a real estate professional.

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Archive for April, 2011

Inflation Pressures Mounting; Mortgage Rates Rising

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Get Your Applications In : FHA Mortgage Insurance Premiums Rising 0.25 Percent April 18, 2011

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Retail Sales Report Should Spell Higher Mortgage Rates For Wednesday

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What’s Ahead For Mortgage Rates This Week : April 11, 2011

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Military Members : You Have 3 Weeks To Buy A Home, Claim Up To $8,000 In Tax Credits

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How Does Your Real Estate Tax Bill Compare To Other Parts Of The Country?

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March Fed Minutes Show Inflation Risks And Rate Hikes On The Horizon

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Plan To Sell Within 5 Years? Consider An Adjustable-Rate Mortgage.

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What’s Ahead For Mortgage Rates This Week : April 4, 2011

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How Does Your Work Commute Compare To Other Cities?

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