October, 2012 | Arizona Mortgage

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Archive for October, 2012

New Home Supply Remains Firmly In “Seller’s Market” Territory

New Home Supply chart The U.S. housing market appears headed for a strong close to 2012.

According to the U.S. Census Bureau, the number of new homes sold jumped to 389,000 units in September 2012 on a seasonally-adjusted, annualized basis.

Not since the expiration of the $8,000 federal home buyer tax credit in April 2010 have new homes sold at such volumes.

September’s tally marks a 5.7 percent increase from the month prior, and a 27 percent increase from September 2011. There are now just 145,000 new homes for sale nationwide and, according to the National Association of Homebuilders, buyer demand continues to grow.

At today’s pace of home sales, the entire U.S. inventory of new homes for sale would sell out in 4.5 months. By way of comparison, in January 2009, new home supply was 12.1 months.

When home supplies dip below 6.0 months, analysts say, it signifies a “seller’s market”; one in which sellers tend to benefit from negotiation leverage over buyers. The national New Home Supply has been below 6.0 months since October 2011.

Perhaps that’s one reason why the average new home sale price has climbed 14.5 percent over the past 12 months to $292,400; and why median new home sales prices have made a similar jump.

With builders reporting prospective buyer foot traffic at its highest level since 2006, home supplies are shrinking at a time when buyer demand is rising. Low mortgage rates and affordable housing choices contribute, too.

30-year fixed rate mortgage rates have been under 4 percent for all of 2012, and are now under 3.50% nationwide. Low rates make for low monthly payments but, like home prices, conditions can’t remain buyer-friendly forever.

For today’s home buyers of new construction, the outlook for finding “great deals” in 2013 may be grim. New home prices are expected to rise and supplies will continue to get scarce. The best homes in the new construction market, therefore, may be the ones you buy today.

By early-next year, low home prices may be gone, and low mortgage rates may be, too.

Simple Explanation Of The Federal Reserve Statement (October 24 , 2012)

Putting the FOMC statement in plain English The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the ninth consecutive meeting, the vote was nearly unanimous. And, also for the ninth consecutive meeting, Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008.

In its press release, the Federal Reserve noted that, since its last meeting six weeks ago, the U.S. economy has been expanding “at a moderate pace”, led by growth in household spending. However, “strains in global financial markets” continue to remain threat to U.S. economic growth, a comment which references to the Eurozone and its economy.

The Fed’s statement also included the following economic observations :

Growth in employment has been slow; unemployment is elevated
Inflation pressures remains stable, and below 2%
Business spending on equipment and structures has slowed

In addition, the Fed addressed the housing market, stating that there have been “further signs” of improvement, “albeit from a depressed level”.

Finally, the Federal Reserve re-affirmed its commitment to its most recent stimulus program, a bond-buying program known as QE3.

Via QE3, the Federal Reserve has been purchasing $40 billion in mortgage-backed bonds monthly, with no defined “end date”. QE3 is meant to suppress U.S. mortgage rates.

Fed Chairman Ben Bernanke has said that QE3 will remain in place until the U.S. economy has recovered in full, at least. It’s a plan that may help home buyers in CA and nationwide. Since QE3 launched, mortgage rates have moved to new all-time lows.

The Fed also used its meeting to announce that it intends to hold the Fed Funds Rate near its target range of 0.000-0.250 percent until mid-2015, at least.

The FOMC’s next scheduled meeting is a two-day event and its last of the year, December 11-12, 2012.

Home Supplies Drop To Multi-Year Low

Existing Home Supply drops to 5.9 months

As the third quarter closed, home resales showed considerable momentum nationwide.

The National Association of REALTORS® reports Existing Home Sales at 4.75 million units in September 2012 on a seasonally-adjusted, annualized basis, an 11 percent increase from one year ago.

An “existing home” is a home that’s been previously occupied; a resale.

The reading marks the second-highest tally of the year — second only to August 2012 when 4.83 million homes were sold on a seasonally-adjusted, annualized basis. The real estate trade association reports that there are now just 2.32 million previously-occupied homes for sale nationwide.

It’s the thinnest national home supply since March 2005 and, at today’s sales pace, all 2.32 million homes would sell in 5.9 months.

A 6.0-month home supply is thought to represent a market in balance. September’s home supply, therefore, suggests a market which favors sellers. Buyers in many U.S. markets may have noticed this shift. Multiple-offer situations are increasingly common and “right-priced” homes are selling quickly.

The median Time on Market is down 31 percent from last year to 70 days nationwide.

Meanwhile, for purchasers of foreclosures and short sales, September Existing Home Sales report included interesting data on the relative value of buying “distressed” property :

Foreclosures sold at an average discount of 21% to market value last month
Short sales sold at an average discount of 13% to market value last month

And, although distressed homes remain a large part of the U.S. housing market, their relative size is shrinking.

In September, foreclosures and short sales accounted for roughly 1 in 4 home sales. Earlier this year, that figure was 1 in 3.

For today’s Phoenix home buyer, September’s Existing Home Sales report may be a “buy signal”. With home supplies down and demand for homes rising, home prices are poised to increase through the last three months of 2012 and into the start 2013.

The Most Expensive U.S. ZIP Codes (2012 Edition)

Most expensive ZIP codes in the U.S. Since late-2011, home values have climbed in many U.S. markets.

The government’s Home Price index puts the increase at +3.7% an annual basis and the National Association of REALTORS® shows home sale prices up 11% since last year.

The price at which a home sells is determined by the economic force of supply-and-demand but location and amenities matter, too; establishing a baseline from which supply-and-demand can work.

Using data compiled by real estate market data firm Altos Research, Forbes Magazine recently presented America’s 10 most expensive ZIP codes for 2012. California and the New York Metro area dominate the list.

New York, NY (10065) : $6,534,430
Alpine, NJ (07620) : $5,745,038
Atherton, CA (94027) : $4,897,864
Sagaponack, NY (11962) : $4,180,385
Hillsborough, CA (94010) : $4,127,250
New York, NY (10014) : $4,116,506
Los Altos Hills, CA (94022) : $4,016,050
New York, NY (10021) : $3,980,829
Rolling Hills, CA (90274) : $3,972,500
New York, NY (10075) : $3,885,409

As an illustration of how home prices have climbed since Forbes publishes last year’s Most Expensive ZIP code list, this year’s #10 — Upper East Side, New York City, New York — would have ranked third in 2011.

The Forbes list may be interesting but, to home buyers or sellers in Phoenix , it’s far from the final word in home values. Real estate remains a local market which means that — even within a given ZIP code — prices can vary based on street and neighborhood, and home characteristics.

Look past the general data and get to the specifics. Talk to your real estate agent for local market pricing.

What’s Ahead For Mortgage Rates This Week : October 22, 2012

FOMC meets this week -- mortgage rates get volatile Mortgage markets worsened last week as hope for a European economic rebound and stronger-than-expected U.S. economic data moved investors out of mortgage-backed bonds.

Mortgage rates all of types — conventional, FHA and VA — lost ground last week, harming home affordability in Phoenix and reducing purchasing power nationwide.

Rising rates also thwarted would-be refinancing households hoping to time a market bottom.

The increase runs counter to Freddie Mac’s weekly Primary Mortgage Market Survey which showed the average 30-year fixed rate mortgage rate dropping 2 basis points to 3.37% nationwide.

This contradiction occurred because Freddie Mac’s weekly mortgage rate survey is conducted Monday through Wednesday, and because the majority of the surveyed banks reply to Freddie Mac on Tuesday. As a consequence, Freddie Mac failed to capture this week’s mid-week movement that took mortgage bonds to a one-month worst.

Access to Freddie Mac mortgage rates is for “prime” borrowers and requires payment of discount points plus closing costs.

This week, mortgage rates may rise again. There is a lot of news on which for Wall Street to trade, beginning with the week’s biggest story — the Federal Open Market Committee’s 2-day meeting scheduled for Tuesday and Wednesday.

At the FOMC’s last meeting, the Federal Reserve introduced a third round of qualitative easing (QE3), a program through which the Fed will work to keep mortgage rates low until the economy’s recovery is more complete.

The Fed is expected to announce no new stimulus in this, its seventh of eight scheduled meetings for 2012, however, mortgage rates are typically volatile in the hours after the FOMC adjourns.

New housing data is set for release this week, too.

Wednesday, the U.S. Census Bureau will release September’s tally of New Home Sales. Given the recent strength in Housing Starts and rising confidence among the nation’s home builders, New Home Sales may best analyst calls for 385,000 new home sold last month on a seasonally-adjusted, annualized basis.

Strength in housing has recently correlated with rising mortgage rates.

The housing market’s forward-looking Pending Home Sales Index is released Thursday.

How To Improve Your FICO Score

The U.S. housing market recovery is underway. New home sales are at a multi-year high, housing starts are at pre-recession levels, and home builders plan for a strong 2013.

Since late-2011, falling mortgage rates have boosted buyer purchasing power. Now, today, in many U.S. markets, the number of active home buyers outnumbers the number of active home sellers. It’s among the reasons why home supplies remain scarce and why home prices are rising.

Roughly 20 percent of today’s home buyers purchase homes with cash. For everyone else, the ability to gain mortgage approval depends on income, assets, and, most importantly, credit scores. Your credit score is a predictor of your future payment performance and lenders pay close attention.

If you plan to buy a home in Phoenix or anywhere else in the next 12 months, spend some time with this The Today Show interview. It’s five minutes of practical credit scoring advice, including separation of credit score myth from credit score fact.

Among the credit scoring tips shared :

How to get your credit checked without harming your credit score
The value of using automatic payments with credit cards
How to use “old” credit cards to boost your credit score

You’ll also learn about utility companies and why you should never be late with payment.

As compared to August 2011, last month’s average, mortgage-financing home buyer’s FICO score improved 9 points to 750. The average “denied” mortgage applicant’s FICO score was 704. Clearly, standards are high. However, credit scoring is a system and, with time, you can improve your rating.

Watch the interview and find ways to make your credit score better. With better credit comes better mortgage rates.

Single-Family Housing Starts Rise To 4-Year High

Housing Starts The housing market continues to improve.

According to the U.S. Census Bureau, on a seasonally-adjusted, annualized basis, Single-Family Housing Starts rose to 603,000 last month, an 11 percent increase from the month prior and the highest reading in more than 4 years.

A “housing start” is a home on which construction has started and home builders are breaking ground at rates not seen even during the 2010 federal home buyer tax credit period.

It’s a signal to home buyers throughout Arizona that the U.S. housing market may be permanently off its bottom.

At least, the nation’s home builders seem to think so.

Earlier this week, the National Association of Homebuilders reported home builder confidence at a 5-year high and nearly triple the levels of last September.

Buoyed by rising sales volume and the heaviest foot traffic since 2006, builders expect the next 6 months of sales to outpace the current rate. It may spell higher home prices for today’s new construction buyer.

Thankfully, mortgage rates remain low.

As compared to last year, today’s buyers have extended purchasing power. Assuming a 20 percent downpayment and a conforming home loan :

September 2011 : A $1,000 mortgage payment afforded a purchase price of $202,000
September 2012 : A $1,000 mortgage payment afforded a purchase price of $226,000

That’s an 11.9% increase in purchasing power increase over just twelve months. When combined with today’s rising rents throughout many U.S. markets, demand for new construction homes remains high and builders have taken notice. Buyers should, too.

With mortgage rates low, low downpayment programs available and home prices poised to rise, it’s an opportune time to be a home buyer. Housing has been trending better since late-2011 and will likely carry that momentum forward into 2013.

If you’ve been shopping new construction, remember that as mortgage rates and home prices rise, home affordability drops.

Home Builder Confidence Moves To 6-Year High

NAHB Housing Market Index As home prices rise, so does home builder confidence.

Tuesday, the National Association of Homebuilders reported its monthly Housing Market Index (HMI) at 41, a one-tick improvement from September and the highest HMI value since June 2006 — a span of 77 months.

The Housing Market Index is a homebuilder confidence indicator. When it reads 50 or better, the HMI suggests favorable conditions for home builders nationwide. Readings below 50 suggest unfavorable conditions for builders.

The HMI has not crossed 50 since April 2006 but the index has been making a run since last year, nearly tripling since the 14 reading of last year’s September.

In addition, builder confidence has climbed for six straight months.

For Scottsdale buyers of new construction, the Housing Market Index may help to set market expectations for the rest of 2012, and into early-2013. This is because the NAHB Housing Market Index is constructed as a composite survey, measuring builder sentiment in three specific areas — current home sales, future home sales, and buyer foot traffic.

What’s good for builders, though, may not be good for buyers.

When builders expect business to improve, they may be less willing to make concessions on price or product, holding home prices high and removing seasonal sales incentives.

This month, home builders are seeing strength in each of the three surveyed areas :

Current Single-Family Sales : 42 (Unchanged from September)
Projected Single-Family Sales : 51 (Unchanged from September)
Buyer Foot Traffic : 35 (+5 from September)

All three values are at multi-year highs but it’s the level of foot traffic that may concern today’s home buyers. Builders report foot traffic through model units to be at the highest rate since mid-last decade. This, combined with a shrinking supply of homes for sale, has contributed to a rise in new home sale prices and suggests even higher home prices in 2013.

Like most of the U.S. housing market, new construction appears to have bottomed in October 2011. One year later, the market looks stronger.

Buyers Win 6.6 Percent Increase In Purchasing Power

Purchasing Power 2010-2012

Mortgage rates in Arizona continue to troll near all-time lows, boosting the purchasing power of home buyers statewide.

According to Freddie Mac’s most recent Primary Mortgage Market survey, the average 30-year fixed rate mortgage is now 3.39 percent nationwide, just three ticks off an all-time low. At the start of last quarter, 30-year fixed rate mortgage rates averaged 3.62 percent.

One year ago, they averaged 4.12%.

When mortgage rates are falling, they present Phoenix home buyers with interesting options. Because of lower rates, buyers can choose to tighten their household budgets, buying an ideal home but paying less to own it each month. Or, for buyers who shop for homes by “monthly payment”, falling mortgage rates put more homes with affordability’s reach.

As a real-life example, for a buyer whose monthly principal + interest mortgage payment is limited to $1,000 per month, and whom opts for a 30-year fixed rate mortgage, as compared to January of this year, the maximum property purchase price has climbed 6.6%, or $14,000 in list price.

Consider this comparison:

January 2012 : A payment of $1,000 afforded a maximum loan size of $211,756
October 2012 : A payment of $1,000 affords a maximum loan size of $225,771

The 6.6 percent increase in affordability outpaces this year’s rise in home prices and is one reason why the U.S. housing market is improving. Slowly and steadily, the U.S. economy is improving and “good deals” in housing are becoming harder to find. In addition, because homeownership is now less expensive than renting in many U.S. cities, home demand among buyers continues to rise.

For today’s home buyer, market conditions appear ripe. Mortgage rates are near all-time lows, low-downpayment mortgage program remain plentiful, and home values have been rising since late-2011. Within 6 months, rates may be up and homes prices, too. Purchasing power would decline, decreasing home affordability nationwide.

The best “deals” in housing, therefore, may be the ones you find today.

What’s Ahead For Mortgage Rates This Week : October 15, 2012

Freddie Mac mortgage rates Mortgage markets improved slightly last week. With a dearth of new U.S. economic data due for release, investors turned their collective attention to the Europe, China, and the Middle East.

U.S. mortgage rates fell slightly in the holiday-shortened week.

The combination of civil protests, economic slowdowns, and growing political tensions caused investors to dump risky assets in favor of the relative safety provided by the U.S. mortgage bond market.

According to Freddie Mac, the average conforming 30-year fixed rate mortgage is now 3.39% nationwide for borrowers willing to pay 0.7 discount points plus a full set of closing costs. 0.7 discount points is a one-time closing cost equal to 0.7 percent of the borrowed loan size.

As an illustration, a bank’s charge of 0.7 discount points on a $100,000 mortgage would cost $700 to the borrower.

Freddie Mac also reported the average conforming 15-year fixed-rate mortgage rate at 2.70% nationwide with an accompanying 0.6 discount points plus closing costs. Loans with zero discount points carry a higher mortgage rate average.

This week, data returns to Wall Street as a series of housing reports are slated for release, in addition to inflationary reports such Tuesday’s Consumer Price Index (CPI).

The week begins with Retail Sales, released at 8:30 AM ET Monday. On a strong figure, mortgage rates in Mesa are expected to climb. This is because Retail Sales data is closely tied to consumer spending and consumer spending accounts for more than two-thirds of the U.S. economy.

A growing economy tends to pull mortgage rates higher.

Tuesday’s CPI may do the same.

Inflation erodes the value of a mortgage bond so when inflation pressures grow, demand for mortgage bonds fall which, in turn, causes mortgage rates to rise. If CPI is higher-than-expected, mortgage rates will likely rise.

Then, there’s a flurry of housing data. The Housing Market Index (Tuesday), Housing Starts (Wednesday) and Existing Home Sales (Friday) all hit this week. Strength in housing may lead mortgage rates higher, harming home affordability for today’s home buyers.

At today’s mortgage rates, every 1/8% increase raises monthly mortgage payments roughly $7 per $100,000 borrowed.

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Archive for October, 2012

New Home Supply Remains Firmly In “Seller’s Market” Territory

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