Dennis' Mortgage Blog

Question of the week:  Who are buying homes?

Answer:   Many of those who have been in the home buying market the past year are not looking for the quick buck or investment gains on property, but are buying homes for the long term.  Able to take advantage of the double dip in interest rates and home prices, they are able to shorten their time frame for being homeowners to help their family.  Most of them are very aware that their home may, or probably depending on location, lose value in the near future but they are committed to long term for their families.  Waiting may provide them an opportunity to purchase a home for a lower price, but probably at a higher interest rate and possibly with more difficult qualifying as underwriting continues to tighten.

In California a study of 2009 existing home sales released by the California Association of Realtors found that almost half of the homes sold were to first time buyers.  Making up 47% of the market, first time buyers were at the highest percentage of the market since 1995.  The historical average for the market is 38.6% of the market consists of first time buyers.  Clearly first time buyers drove the market in California in 2009, which is very consistent with what our company experienced as well.

Who are the sellers?  According to the study nearly half of home sales last year were labeled “distressed”, up from approximately 35% in 2008.  A third of all sellers last year sold their property at a loss, not necessarily below what was owed but less than what they purchased the property for originally.  This number is the highest in the 20 years CAR has been tracking net cash losses on sales, historically just under 10% of sellers close at a loss. 

According to the study the median price, while below 2008 numbers, bottomed out in February 2009 at $245,170.  Increasing monthly through the rest of 2009 CAR predicts the annual statewide median price for 2010 to increase $9,000 to $280,000.  Keep in mind this is the statewide median, from Eureka to Chula Vista.

What the survey shows is many Californians are more interested in homeownership and purchasing a home for their families than looking to live in an investment.  A change in outlook and purchasing mentality from a not insignificant portion of the market during the expansion of the housing bubble. 

Have a question for me?  Ask me!

If you or someone you know is planning on taking advantage of the Homebuyers Tax Credit then you better get on it.  April 30^th is fast approaching.

With no big economic reports this week, until this morning, Mortgage Backed Securities (MBS) mostly off technical factors.  Having finished up last Thursday and then dropping heavy Friday, the momentum down continued all week.  Two factors contributed to pushing the MBS down further.

$74 Billion in U.S. Debt came to market in three days of auctions by the Treasury Department, further saturating the supply.  Coinciding with the auctions was the House of Representatives passing another “stimulus” spending bill over $170 billion, rightfully putting concern into the markets of no end in sight for growing U.S. debt and deficits.  More government debt means more supply, means lower bond prices, means higher rates.  Investors reacted accordingly.

China announced inflation figures at their highest numbers in nineteen months.  With the numbers the number one foreign buyer of U.S. debt announced it was tightening credit policy and raising rates internally.  With a better rate of return at home versus abroad (read: United States) plus pressures for future higher rates in the U.S. pressure increases for higher rates.

The MBS chart for the week is a red staircase leading down from left to right as prices dropped heavy last Friday, a brief up and down day Monday that ended up somewhat flat, and then down Tuesday, Wednesday and Thursday.  Friday morning opened up with MBS below levels of support and dropping quickly.

Adding incentive to drop further was the release of retail sales for February.  After all the horrible weather in February for most of the country—we even had quite a bit of rain here!—the expectations were for retail sales to go negative in February.  Surprise!  Weather did not keep everyone home.  Retail sales increased, albeit only 0.3% but up nonetheless.  Immediately following the news stocks rejoiced and MBS frowned, sobbed almost.  We find support at the 200 day moving average, perhaps, and MBS prices hit a three to four week low.

Some positive news, sort of.  Americans wealth has grown!  Much was made in headlines of American wealth increasing over the past year.  Reading into the story a major factor is mortgage defaults wiping out negative equity and credit card defaults removing debt personal balance sheets.  But as a nation we are using credit less and saving more.  How long until we elect officials who behave the same way?

Looking ahead I see little reason to float.  There may be some short term blips down in the rates over the next few weeks, but overall the pressure from over-supply, the Feds pulling out of the mortgage markets with their $1.2 Trillion purchasing plan running out in a few weeks and technical signals will keep pressure on rates to increase.  To float is to take on a risk proposition that is greater than potential benefit.

Rates for Friday March 12, 2010:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.75%                              No Change

30 year conforming-jumbo 5.00%                     No Change

30 year FHA    4.75%                                      No Change

30 year FHA jumbo 4.875%                            No Change

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Don’t forget to change your clocks tomorrow before you go to bed or you’ll be late for church on Sunday…or your tee time!

Have a great weekend, let me know how I can be of service to you,

Dennis