Archive for category: News

Question: Why would someone use an app for something as important as a mortgage?

Answer: Great question from a 9th grader sitting on the couch when an ad came on the television. It was prefaced with, “when I first saw this ad I thought, ‘this company could put dad out of business. Then I thought, ‘why would someone use an app for something as important as mortgage?’”

There is most likely some environmental bias having spent her 14 years listening to Dad talk about mortgages, but it is still a great question, why would someone entrust something as important as their most expensive financial obligation to a computer program and some unknown person or people perhaps in some foreign company?

The personal computer revolution has commoditized many segments of the economy and combined with the advent of big box stores has brought to the forefront for most consumers the instinct to get something for less. But what have we sacrificed in doing so? Quality? Service? Accountability?

Airline tickets, groceries, books, ratchet sets, cabinet fixtures, beds and more can be purchased and delivered to you without ever speaking to anyone or actually seeing or touching the product—in the case of books without ever touching the book. Even medical and legal advice can be had with the click of a mouse. And of course mortgages are also available in the click-click economy.

But is diagnosing a skin rash that could be skin cancer, setting up a trust for your estate or financing your home on a similar level of importance as getting a flight to and a hotel in Nashville or a set of high ball glasses for your brother’s birthday?

When someone uses an on-line app or large call center for their mortgage this is what they miss:

Personal service: When we speak with clients about their mortgage, whether purchasing a first home, investment property, refinancing or whatever their need is, we engage in a conversation that is more than how much do you owe, how much do you make. What is the purpose of the mortgage? What are your long term plans? Would it make sense to pay bit more and get a lower rate or increase your payment a little and save on costs? Are there special considerations regarding your income, employment, credit, source of funds to close, property with unpermitted rooms? In essence much like a doctor reviews your medical history during an examination before completing a diagnosis and suggesting treatment a good mortgage professional will also engage in a thorough examination before presenting mortgage options. My Samsung Galaxy cannot do that.

Accountability: You can touch us, come into our office and shake hands, have a cup of coffee or other beverage and talk about what you need, or what problems may or have cropped up. Should something go wrong or need immediate attention you have our phone numbers that are direct dial and not through a myriad of push 1 push 5 push 3 then hold. There is only one point person for your mortgage and it is the same person you initially spoke to when discussing ability to qualify and mortgage options through the application and collection of supporting items through ordering and signing loan documents through closing and for any questions you may have for as long as you need after your loan is funded—be it five days or five years. Every step of the way we are accountable to you for ensuring you are informed on what is happening and why, when the current step in the process will be completed and when the next is expected to start and be completed. Because our business is solely referral based we go the extra step to make sure everything occurs as planned with you, we know if it doesn’t then we not only failed you but also failed to possibly secure future business.

Knowledge: Yesterday was the 17th anniversary of Stratis Financial, next year will mark 30 years since I received my license from the Department of Real Estate and began in the mortgage industry (sidebar real estate licenses are chronological, mine is 00966315, today licenses being issued are above 01999980—that means over one million licenses have been issued since I received mine). Our company has hundreds of years of experience in the industry between our originators and staff. We have funded thousands of loans at Stratis Financial and tens of thousands of loans if counting the totality of our careers. There are very few circumstances we have not encountered before, and if we do come across an issue or problem we personally have not seen the depth of experience we can draw upon for solutions is as deep as any mortgage company in the region, much state or country.

Value: I tell clients you can get on the phone or internet and always find someone marketing a “cheaper” loan. But there is a big gap between marketing and closing, and between closing when and how intended and just getting it done when it gets done. Do some companies have lower rates, fees, costs? Most likely. Are we competitive with the market? Absolutely. And when you add in the support, service, ability to minimize the amount of time and resources you need to expend to get your loan closed then we are perhaps the best value in the market. Not saying we are comparable in regards to the big picture of life, but your shelter and biggest financial commitment is a pretty big deal, that said would your shop the cost of doctors and hospitals if you or someone in your family needed an very delicate operation? Most likely not. The advantage we provide is our ability is akin to the top surgeons in any field but the rates and costs we provide are closer to your family doctor than the best surgeon. (That’s probably a poor analogy but I hope you get my meaning.)

Relationship: As mentioned above, once we fund your loan you are not a file number, you are a client for as long as you choose to be one. We have clients that we first met decades ago, worked together on several home purchase and refinances and now working with their children on their mortgages. This is because we care, if we did not care all of our transactions would be one and done and looking for the next one—in which case we would be spending significant money on media advertising, on-line presence and marketing to capture that one phone call or on-line application for another client we will never speak to again. That is not us. You will not hear our ads on the radio or television. You will not see pop up ads when you go on-line. You will not receive telemarketing calls. Because the business we want, the business we get and the business we do very, very well is referred to us from clients and business partners. And they refer us because we are very good at what we do, we provide tremendous service and personalize that service and we succeed at funding the mortgages you need.

Why use an app? I use one to get Dodger tickets, but when it comes to my home and biggest check I write every month I’d rather have someone I trust to speak with and work with through the process.

[email protected]

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

A bit of positive news for the economy this week as the second revision for 2nd quarter Gross Domestic Product up GDP growth to 1.4% from its prior estimate of 1.1% and the estimate for 3rd quarter growth is 2.5-3%. The news is slightly mortgage rate unfriendly, especially if the estimates for 3rd quarter growth are accurate.

Not as positive was data released today for personal income and spending. Since consumer spending is 65-70% of our economy future economic growth is very dependent on people buying goods and services, and to do that they need to earn money. Personal income in August just 0.2% in August and spending for the month was flat, as in 0.0% growth. Prices inched up 0.2%, negating income comes and year over year prices are up 1.0%, though the core price index (strip out food and energy) rose to 1.7% annualized approaching the Fed’s 2.0% inflation target. The news is mostly mortgage rate friendly.

Rates for Friday September 30, 2016: Rates remain unchanged from last week and we remain in our tight little band where rates have been for several months. Technical factors are pointing to a possible drop in Mortgage Backed Security prices in the near future which could lead to higher rates. My advice remains to lock in your mortgage rate when you can through the end of your escrow period.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Flat
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.

Tomorrow kicks off the best month of the year for sports fans as all four major sports are underway. Baseball playoffs and World Series, professional and college football seasons enter there midpoints, the NHL and NBA start their seasons. Before cable my friends and I would spend many a weekend with two or three televisions stacked up in a dorm room or someone’s apartment constantly changing which game was on the color t.v. and moving antennas to get clearer pictures. I still wonder why our grades tended to dip a bit in October….

Summer is still clinging to us this weekend, I am ready for it to let go and give us the cool, crisp mornings and afternoons.

Have a great week,

Dennis

Missed a Weekly Rate & Market Update? You can catch up as all the updates are posted on my website at http://www.denniscsmith.com/MyBlog .

Question of the week: Who pays who when I buy a home and when?

Answer: Who pays who how much and when in a real estate transaction is always negotiable between buyer and seller and those involved. In theory this can happen, in our local Southern California markets here is who customarily pays what to who and when:

Real estate agent(s): Once or twice a year after we go through the amount of money they will need to close on their new home for down payment and closing costs a first time homebuyer will ask me, “when and how much do I have to pay my real estate agent?”

The answer is nothing. Well sort of nothing.

The real estate agents are paid by the seller when the transaction closes. A seller will sign a listing agreement with an agent to represent them in the marketing and sale of their home. The agent will put the listing on the Multiple Listing Service (MLS) and will let the other agents know the amount, as a percentage of sales price, that the agent representing the buyer will be paid.

As a buyer you do pay the commission to the agents, just not directly. The commissions to the agents are paid out of the seller’s proceeds, however the amount of those proceeds is paid by you the buyer in the sales price. This is why when we assist with transactions with one party buying another off of title, for instance in a divorce or partnership split up or one sibling buying out another from the family home after parents have passed away, we discount the market value by the amount of real estate commissions. Since there are no commissions being paid then the sales price should reflect the lack of commissions.

So when you are buying a home you do not need the funds to pay the real estate agent, s/he will be paid by the seller as part of your sales price.

Loan originator/lender: Like real estate agents we get paid when the transaction is completed. In the third of my four part series that was a semi-mortgage 101 course I discussed the relationship between cash to close and interest-payment. When it comes to paying for your loan and the services of the lender you can either pay higher closing costs for points and get a lower rate, or pay lower points and closing costs and have a higher rate. Should you choose the higher interest rate and lower fees then the lender funding the loan will pay the origination costs to your loan originator after the loan is funded.

Escrow: Everyone in the industry loves escrow because they are the ones who disperse the funds to everyone for commissions, fees, etc after the transaction closes—including themselves. Escrow fees are typically split evenly between the buyer and seller, though if one side has more work done, such as drawing multiple deeds or paying off multiple accounts or liens their cost may be higher. The standard purchase contract has a clause to which the buyer and seller agree to split the escrow fee.

Title company: Buyer and seller have separate costs for title insurance. The buyer pays a lower cost for the coverage required by the lender to insure the position of their lien on title and the seller pays a higher fee for insurance that the title being transferred to the buyer is clean, or not clouded—i.e. when you buy the home you are the owner and no one can come along later and claim ownership, if they do and are correct the title company will pay to correct the claim.

The title insurance company is also paid when the transaction closes.
The two services that the buyer commonly pays for outside of escrow and before the transaction are for a physical inspection of the property and the appraisal.

All fees are negotiable as to who pays, as I mentioned at the top, but it usually depends on overall market conditions. When properties are slow to sell and it is a buyer’s market it is not unusual for us to see purchase agreements where the seller agrees to pay closing costs for the buyer. In a market as we have now in Southern California with multiple offers on many properties a buyer cannot expect to have a seller agree to pay their closing costs.

As a buyer when you meet with us and we show you the fee worksheet for the purchase of your new home you will have listed all the costs you will pay, with the exception of the home inspection. The bottom line of funds needed to close is what you need to close, no additional funds for escrow or title—as those fees are included in our worksheet; no additional loan fees-as those are included in our worksheet; no fees for real estate commissions as those are included in your sales price and paid by the seller.

[email protected]

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Not a lot of positive economic news on Thursday. Both retail sales and the Producer Price Index data for August were released. Retail sales in August dropped 0.3%, since a lot of back to school shopping typically done in August this makes the news a bit troubling. Since consumer spending is 65-70% of our economy a drop in retails sales does not support a growing economy. Another gauge of a growing economy is rising prices, which is not what the PPI data showed for August. Producers’ prices were flat in August, after dropping in July, and flat from August 2015. The combination of dropping retail sales and flat prices for producers is positive for low interest rates.

Friday provided some positive data. This morning’s release of Consumer Price Index data showed some life as prices increased 0.3% in August from July and are up 1.1% from last August. While under the Fed’s target range for inflation the price growth is positive for the economy and somewhat negative for interest rates.

At this point investors are holding tight waiting for next Wednesday when the Federal Reserve Open Market Committee will announce if there they decided to increase the Fed Funds rate. The consensus is that they will not for a myriad of reasons, even political, but the basic reason there is no reason to push up the rate is that the economic data does not show any substantive reason for higher rates.

Rates for Friday September 16, 2016: Rates are flat from last Friday. Mortgage Backed Securities spent the week jumping around on rumor, innuendo and speculation about the Fed’s move next week but in the end the trading was confined to a tight range and we see no change in our rates. My advice remains eliminate any upside risk as there is not much to gain with lower rates and lock when you can.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Flat
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.

Five friends and I have had the same football pool format for over twenty-five years. Before fantasy sports became popular and everyone from the science teacher to the church administrator were picking players for their fantasy my friends and I drafted teams at the beginning of each season and through a complicated formula of weekly wins, losing to undrafted teams and playoff performances have had the same pool going for a few decades plus. There are three of us in Southern California and one player each in Washington, Oregon and Florida.

This weekend we are getting together for the first time in five or six years, gathering in Denver for a guys’ sports weekend going to the Rockies baseball game on Saturday night and the Broncos and Colts game on Sunday.

So if my return phone call or email is a bit delayed through the weekend you now know why!

Have a great week,

Dennis

P.S. For those wondering what five teams I drafted this year: Green Bay, Indianapolis, Oakland, Chicago and Philadelphia.

Question of the week: How come when the market is bad rates drop and when market is good rates rise?

Answer: Last week we looked at the relationship between the price of a mortgage and the mortgage’s interest rate. Using a teeter-totter we saw that the lower the interest rate the higher the price and vice-versa. This week we look at another inverse relationship, that between the economy and investment markets and interest rates.

Most people know that when the economy is going well stock markets rise. Your retirement account through your employer increases in value and the news is peppered with higher earnings, higher profits and record numbers for the major indexes—the Dow Jones, NASDAQ and S&P. Correspondingly when the economy is doing poorly, as in a recession, stock markets drop, your 401(k) or other retirement account decline in value and business news talks about missed earnings and declining or negative profits.

This makes sense, if the economy is strong people are spending money, companies are selling more and more of their goods and services so they have higher profits which makes the companies more valuable, which is reflected in stock prices.

So why is it when there is good economic news and the economy is improving bond** prices drop and when there is bad economic news and/or the economy is improving bond prices rise?

**Mortgages are traded as Mortgage Backed Securities as discussed two weeks ago, MBS prices move up and down with bonds such as U.S. Treasury and large corporate bonds.

Think of our teeter-totter, when prices drop rates increase, when prices rise rates drop. So why do bond, and therefore mortgage, prices drop when stock prices increase? And vice-versa when stock prices drop mortgage prices increase?

The greater the risk the greater the return, perhaps the most basic axiom for finances and investing. Less known is the term flight to safety.

Flight to safety is one reason why interest rates drop when there is bad economic news and uncertainty for the future. Investors flee the more risky investments like stocks and purchase safer investments, like bonds, and mortgages, which pay fixed rates of interest rather than risk sudden drop in prices should they leave their money in stocks, or equities.

Another reason for interest rates dropping when there is not so good economic news is investors purchase bonds. Investors not only are motivated by the flight to quality principle, but also because the long term expectation is for interest rates to drop due to other investors buying bonds but also in anticipation of moves by central banks lowering rates to stimulate borrowing to stimulate the economy.

As investors move into bonds prices go up with the increase in demand. Increased demand in a market generally causes higher prices, higher prices in bonds means lower interest rates.

When the prospect is for a growing economy investors sell their bond holdings and purchase stocks. This causes the price for bonds to drop and interest rates to rise.

As a general rule if stock prices are increasing then interest rates are as well, if stock prices are dropping then so are interest rates. That is the general rule which has been broken in our post-recession economy as rates have dropped and remained historically low despite the sharp increase in stock prices. This is primarily due to the tremendous amount of money put into the economy by the Federal Reserve during and in the years after the recession, the Fed retaining ultra-low interest rates for the seven plus years since the recession ended, and an economy that while not in recession has grown slower than any post-war economy following a recession. In the meantime corporations have increased profits by reducing labor costs and the cheap access to capital caused by the low rates.

When our economy ends its current cycle and begins the next it will be interesting to see how interest rates react. If they historical tie between higher rates with higher stock prices returns or if the two remain somewhat disconnected as they have been for the past decade.

This wraps up our four week discussion of mortgages and what they are and how they work, I hope you have enjoyed it and I was able to increase your understanding.

For those just catching up here is the series on mortgages from the past few weeks:

8/12/16: I have a Fannie Mae loan, why am I not making my payment to Fannie Mae?

8/19/16: What are Fannie Mae, Freddie Mac and Ginnie Mae?

8/26/16: Why are there different prices for the same loan?

[email protected]

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Employment and income dominate the economic news this week. On Monday Personal Income and Outlays for July showed incomes grew 0.4% from June and spending rose 0.3% from the prior month. Spending growth slowed from June which is of some concern since consumer spending is 65-70% of our economy. Personal savings grew in the month, again not a strong positive for the economy. Prices were flat for the month giving no price side reasoning for the Fed to raise rates. Overall the data was neutral for mortgage rates.

Of bigger impact was the monthly jobs report. Being the first Friday of the month the Labor Department released the numbers for employment in August—and the news is not great. After adding 275,000 job in July the economy added only 155,000 in August, of which only 126,000 were in the private sector. August jobs reports are a bit quirky with summer employment and auto manufacturers flexing employment to retool for new models, even with the quirkiness however the news is not positive. Since the Fed has repeatedly indicated they are focused on employment for their rate decisions the data supports no move on rates by the Fed later this month.

Under-reported but having a tremendous impact on the economy is the bankruptcy of the Hanjin shipping line. Hanjin is a South Korean shipping company that is one of the major players in the Ports of Los Angeles and Long Beach. Hanjin ships carry approximately 5% of all ocean trade. Ocean shipping is 90% of global movement of goods so Hanjin impact global trade. Right now millions of containers containing billions of dollars of goods are sitting on ships in ports and harbors around the world because ports are not off-loading or on-loading Hanjin ships. Goods meant for American retailers for the Christmas season are in many of those containers. There is a ripple effect of goods not moving for one ocean line that impacts a port and causes delays for other lines containers being moved, immediately there has been a tremendous increase in shipping costs of containers on sea and land If the ripple effect multiplies it could cause some damage to not only our economy but others globally. Keep an eye on this issue.

Rates for Friday September 2, 2016: I need to do some research, but I cannot recall a time when conforming fixed rates were flat for seven straight weeks and the same for nine out of ten. It shows that there is no major news to impact investors, which means no significant good or bad news. I maintain my advice to take advantage of these rates and lock in when you can.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Flat
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.

Have a great Labor Day weekend. It will special in the Smith household as Leslie and I celebrate our twenty-second anniversary on Sunday—I celebrate every day that this wonderful woman is my wife, but glad she celebrates at least once a year!

Have a great week,

Dennis

Question of the week: What are Fannie Mae, Freddie Mac and Ginnie Mae?

Answer: Last week we answered why if you have a Fannie Mae loan you do not make your payment to Fannie Mae. So what is Fannie Mae, its brother Freddie and cousin Ginnie?

Before we get to what they are and do, let’s get to the names. Fannie Mae is the nickname for the Federal National Mortgage Association (FNMA). Freddie Mac is the name used for the Federal Home Loan Mortgage Corporation (FHLMC. Ginnie Mae is the Government National Mortgage Association (GNMA). It is easy to see how Fannie and Ginnie got their names looking at the initials, not sure who or how Freddie came out of FHLMC.

Fannie and Freddie are “government sponsored entities,” or GSEs. The definition of a GSE is a private corporation that is created by Congress. You can purchase stock in Fannie and Freddie and they operate like other private corporations. During the mortgage and housing market melt-downs last decade the U.S. Secretary of Treasury Henry Paulson put Fannie and Freddie into conservatorship, taking control of the GSEs. As part of the take-over, the Treasury supported the two companies with approximately $100 billion each in exchange for preferred stock. Since then both GSEs have repaid the Treasury significantly more than the funds put into the companies.

Why do Fannie and Freddie exist? Last week I wrote a bit about secondary markets and Fannie and Freddie acting at clearing houses or conduits between investors and borrowers. That is the reason both exist, to provide liquidity to the mortgage markets. By having a central entity to provide standard underwriting guidelines and purchase mortgages that meet those guidelines from borrowers mortgages become cheaper for borrowers to obtain, thus expanding the opportunity of homeownership. The central entity also allows for more money to be available for residential lenders since they do not have to hold onto the mortgages they fund but can sell them to Fannie Mae thereby having more funds to make future mortgages.

When you hear about “conventional” or “conforming” loans they are referring to Fannie and/or Freddie loans. These are loan underwritten to the guidelines established by Fannie or Freddie (while similar there are differences in their guidelines).

On the investor side, when an investor purchases Mortgage Backed Securities from Fannie or Freddie they know that the loans in their investment have been underwritten to specific guidelines.

Ginnie Mae is different from Fannie and Freddie in that it is not a Government Sponsored Entity, but is a government owned corporation. Ginnie acts in the same manner as Fannie and Freddie but instead of conventional loans from the private sector, Ginnie issues Mortgage Backed Securities of government insured mortgages, primarily FHA and VA mortgages. The purpose and result is the same as with Fannie and Freddie: provide more efficient movement of capital from investors to lenders to expand availability of funds for mortgages thereby reducing costs to borrowers and expanding homeownership.

Because Ginnie Mae is part of a government agency (Department of Housing and Development, HUD) its security issues are backed by the full faith and credit of the United States Treasury—essentially making them guaranteed investments without risk since the U.S. government is guaranteeing all interest and principal payments and the U.S. government has never defaulted on a payment obligation; there is some risk but the risk is that the federal government will go into default.

It is estimated that about 90% of mortgages in the United States are from either Fannie Mae, Freddie Mac or Ginnie Mae with several trillion dollars of mortgages currently outstanding.

Next week we will continue the series on how mortgages work by looking at pricing and rates of mortgages for borrowers and the following week will conclude the series with a look at how those rates and prices are determined by the financial markets.

[email protected]

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Housing is dragging the economy along, thankfully. On Tuesday the Consumer Price Index for July was released and the report was not good. Prices were flat from June to July and from last July to this CPI increased on 0.8%–well below the Fed’s 2% target rate. Housing prices increased 0.3% for the month and are up 2.4% for the year, helping keep prices from going negative were medical care prices which were up 0.5% for the month and 4.0% from last July. For people looking to purchase a home and monitoring their medical insurance and expenses there is no surprise in the increases in either category. The news is extremely mortgage rate friendly as flat prices indicate a stagnant economy and continued low rates.

Rates for Friday August 19, 2016: Rates continue to lie on the floor and there is little evidence that they will get up any time soon. Take advantage of these rates!

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Flat
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.

I guess when you have polarizing political candidates and world-wide athletic games with obligatory scandal both going on at the same time it can be hard to make the news. The tragic flooding going on in the Baton Rouge area of Louisiana however should push aside politics and at minimum share the media stage with the Olympics. The historic rain fall and flooding has created a tragic situation for those in the region and it seems it is of little interest to most Americans. Perhaps if there were wide spread looting and pillaging the networks might send a few cameras to the area….You can help, and it is needed. As always the Red Cross is a major supplier of needed items, from temporary housing to food and water to comfort.

If everyone who receives the Weekly Rate & Update makes a $25 (tax deductible) contribution to the effort that would be over $15,000 to the Red Cross for its needs in Louisiana. Here is the link if you are willing to contribute.

Thank you for your contribution, have a great week,

Dennis

Question of the week: We are thinking about selling our current home and buying a new one, is this a good time?

Answer: We’ve been this question a lot lately as we run numbers for clients to determine whether a refinance of their existing mortgage makes. “We don’t know if we want to stay here much longer….” or some variation is the lead to the question, is now a good time for us to sell our home and buy a new one?

Families who have outgrown their first home, couples near retirement looking to down size for retirement or young couple looking to move out of their condo into a house, asking “should we refinance or buy a new home?” After discussing options, what-ifs and objectives some are deciding to move up their future purchasing time line and finding what they need on the market. Is this something you should do?

Last week we addressed if the sharp rise in home prices the last few years portends another housing bubble. So if you are considering moving in the future, later this year, next year, the year after….should you move sooner, i.e. today, rather than later?

Here is a chart that shows the median home price in June for 2014, 2015 and 2016 and the interest rate for 30 year fixed rate loan (20% down, 740 FICO score, 1.25 points—what is quoted each week in the Weekly Rate & Market Update). What if you asked the should we buy now question in 2014?

Looking at the interest rate and monthly payment of the 2016 median price it appears that if you waited from 2014 or 2015 to purchase a home you made a good decision because you were able to purchase a higher priced home for a lower rate and affordable payment. But that is too casual of a comparison. Keep in mind this is the median home, so pretty much the same home you could have purchased in 2014 or 2015 for a less cash out of pocket and a smaller loan to pay off over the 30 year mortgage. As well, those who purchased in 2014 or 2015 have probably refinanced their mortgage, lowering their payment significantly.

Those who purchased the median home in 2014 have built equity and purchased for less cash out of their pocket than if they had waited a year or two to purchase.

Looking forward, rates are at all-time lows and home prices are rising as a steady pace. If you are considering buying a new home in the new few years consider the long term cost of higher price for the same home you could purchase today requiring higher down payment, and probably a higher interest rate on what will be a higher loan amount.

Yes, it is currently a seller’s market, but if you are a homeowner you will be the seller in the seller’s market before you become the buyer.

If purchasing a new home in the future is something you are considering give me a call and we can discuss your options, risks, benefits, etc so you have more information before making such an important decision.

[email protected]

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Some very important economic data this week. First was the release of Personal Income and Consumer Spending for July. Personal income rose for the second month in a row, up 0.2% from July, weaker than expected but positive nonetheless. Consumer spending increased 0.4% for the month, dipping into savings as the consumer spending rate dropped. Year over year prices are well below the Fed’s inflation target rate, up 0.9% for all prices and only 1.6% if food and energy are taken out of the data. The news is mixed for mortgage rates, the positive consumer spending gives a bit of a push higher to rates, however the tepid income and inflation numbers give support to low rates.

July’s job report was released this morning. The data shows a strengthening job market with 255,000 jobs added to the economy last month. Also in the report was an uptick in the labor participation rate and an increase in the average work week for the first time since January. Overall the report is positive for the economy and as such puts pressure on mortgage rates to move higher. On the strength of this report the chances of the Fed to increase its discount rate at its next meeting in September are pretty high, especially if August employment figures are as strong as July’s.

Rates for Friday August 5, 2016: Rates hold on this Friday despite the positive jobs report news. I keep waiting for a technical breakout and profit taking but so far investors are content to let their money ride in the bond markets.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Flat
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have may have no points and credit towards closing costs, changes daily.

How times have changed department. Our internet, phone, television crashed this morning at home. My standard Friday is to put out the Weekly Rate & Market Update from the home office and no internet could be a problem—or it would have been a few years ago before our phones were able to become mobile hot spots through which we can connect other devices to the world wide web machines. Dating myself, when I started in this business we hand wrote applications, had to mail in requests for credit reports and wait a week or more to get the reports. Everything was sent to lenders using special couriers. Now we get upset if our internet connection takes fifteen seconds to connect to the MLB.com website to see if the Phillies scored in the top of the 9th.

Enough of the “back in my day…” remember today is someone’s back-in-my-day several decades hence.

Have a great week,

Dennis