Mortgage Rate Drops Below 4%

Last week, Freddie Mac reported an interest rate on a 30-year, fixed rate mortgage of 3.97%, representing the lowest level since June 20, 2013. This results from a number of factors. Interest rates typically move alongside the 10-year Treasury note, which reached a low of 1.86% last week. This is the first time that the yield has been below 2% since May 2013. Many investors prefer the safety of U.S. Treasury bonds given concerns about the economic weakness in Europe, Ebola, and geopolitical turmoil worldwide (such as the threat of the Islamic State militia group in the Middle East). This contrasts expectations of rising interest rates resulting from the Federal Reserve pulling back its economic stimulus of buying bonds and mortgage-backed securities.

Many homeowners have seized this opportunity to refinance. Bank of America reports that a .5% decrease in mortgage rates for a home worth $221,000 should result in savings of $50 per month. However, the Associated Press argues that mortgage rates should not solely dictate the decision to refinance, because doing so is costly. For example, it would cost approximately $2,500 in fees to refinance from a 5.5% to 4% mortgage rate on a $200,000 mortgage, taking roughly 14 months to break even.

Millennials Put Hold on American Dream

Millennials-those born after 1980 through the mid/late 1990s-are not buying homes at the rate previous generations have. To determine why, Bank of America Merrill Lynch conducted a survey of 1000 adults ages 20-34 across various U.S. cities. This is what the company found:

Millennials want to own their own home, but lack the financial resources to do so. 73% of survey respondents report that owning a home is either very important (56%) or important (17%) to them, indicating that Millennials maintain the strong desire to own their own homes consistent with the classic perception of the American Dream. However, Millennials have been negatively affected by cyclical economic factors including high unemployment, lack of wage growth, and lack of credit. 

The study suggests that Millennials may have a distorted image of interest rates as a result of growing up during a time when interest rates were artificially low, hovering around 3-5%. Looking back in time presents a different picture: since 1971, the median 30-year fixed mortgage rate has been 7.98%. Employment for those ages 25-34 is 75.6%, which is more than the low of 73.4 but still behind the pre-recession level of 83%.  Wage growth has been slow, with the real median income for those under 35 falling 16% from $42,000 in 2007 to $35,000 in 2013. Tight credit remains another issue. The average qualifying FICO score as of July 2014 (690 and 760 for an FHA mortgage and conventional mortgage, respectively), is nearly 13 points greater than the average score back to 2000. 

Student loan debt is also hindering first-time homebuyers. One quarter of survey respondents cite that student debt has prohibited them from purchasing a home to date. The median education debt for those under 35 was $17,200 in 2013. It is not a surprise, then, that the survey revealed that Millennials who have student loans are 55% more likely to currently rent than own a home.

Nineteen percent of Millennials are living with their parents. This consists of 31% for those ages 20-24, 16% ages 25-29, and 10% ages 30-34. Many Millennials are living in an apartment (38%) while others have their own home (31%). Not surprising, higher income earners are much more likely to be living in their own home. 12% of respondents making less than $25,000 own their own home, while 60% of those making $75,000-$100,000 own their own home. 

Millennials are delaying household formation, including getting married and having children. Annual household formations of married couples lave dropped 61% for those under 25, 41% for those 25-29, and 18% for those 30-34 since 1982. Mellennials are having fewer kids, and they are having them later in life. Birthrates for women ages 20-29 are decreasing while birthrates for women ages 30-39 are increasing.

As the economy continues to recover and Millennials increase their earnings, they are expected to enter the housing market in greater numbers. Half of those surveyed plan to buy a home within the next five years. The American Dream is not lost: it is merely on hold. 

Mortgage Demand Dropping - Find Out Why

Fixed-rate mortgages continue to decline rather than increase, which was expected of the second half of 2014. Last week, they reached the lowest average of the year, as reported by Freddie Mac. For the week ending August 21, the average 30-year fixed-rate mortgage was 4.10 percent (down from 4.58 this time last year and 4.12 percent last week), while the average 15-year fixed-rate mortgage was 3.26 percent (down from 3.60 percent this time last year and 3.24 percent last week). Freddie Mac predicts new and refinance mortgage origination volume this year to be the lowest since 2000, at approximately $1.15 trillion.

 So why has mortgage origination declined? Freddie Mac analysts identify three reasons:

1. The refinancing boom is over. The number of home refinances has fallen 60% from 2013 to 2014 and is expected to decrease another 50 percent from 2014 to 2015. Mortgage rates are expected to rise soon, discouraging borrowers from refinancing.
2. Home sales are low. Compared to the first half of 2013, home sales have fallen roughly 5 percent in the first six months of this year. Reasons include slower economic growth, a phase of higher mortgage rates, a harsh winter, minimum new home construction, and limited inventory.
3. More buyers are using cash. Although the number of buyers paying in cash is expected to decrease alongside the number of distressed homes on the market, all-cash home sales rose from 31 to 33 percent in the first six months of 2014.

Whatever the reason, now is the time to take advantage of lower borrowing costs before they inevitably rise!

Predictions of the 2014 Housing Market

An article published by Realtor.com discusses five trends that experts predict to see this year:

1) Stable Inventory. 2013 was noted for its historically low inventory. In previous months, inventory gradually increased, although average age of inventory is still lower (down 11% in 2013), illustrating the fact that homes are selling faster than they were in 2012.

2) Positive Equity. Increased home prices helped 25 million homeowners regain positive equity status during the second quarter of 2013. Median list price for homes in October rose 7.57 percent above that of October 2012. Home prices are expected to continue increasing in 2014, which is good news for the 7.1 million homes still in negative equity (as of the second quarter of 2013).

3) Fewer Foreclosures. Foreclosure inventory has dropped to multi-year lows, indicating that foreclosures will have a minimal impact on the 2014 housing market. In fact, September 2013 marked the 36th consecutive month with a year-over-year decrease in foreclosure activity. 

4) Increased Mortgage Rates. Even though mortgage rates have already increased 100 basis points in 2013, they are nonetheless expected to rise. Janet Yellen, the chairman-designate of the Federal Reserve, pledges to continue the policies of Ben Bernanke, including keeping mortgage rates low by buying blocks of mortgage-backed securities.

5) Less-Afforable Homes. Increased home prices have outpaced increased income, resulting in the lowest Home Affordability Index in five years (as published by the National Association of Realtors).

While some of these patterns are favorable and others are not, it is important to remember that they are only speculative. The real estate market changes every day, alongside changes in the general economy. Keep up with my blog in order to stay informed of real estate market trends!

Buyers and Sellers Remain Cautious

According to a survey by Redfin, an online real estate brokerage, only 28% of people feel now is a good time to buy a home. This is actually an increase from 24% in the third quarter. This is the first time since the fourth quarter of 2012 that homebuyer confidence has increased. Why isn't buyer confidence even higher? Buyers are frustrated with low inventory, increasing home prices, and increasing mortgage rates. Seller confidence is dwindling, as well. While 63% of survey respondents said "now is a good time to sell a home" in the third quarter, that percentage has dropped to 46%.

In November, Fannie Mae's National Housing Survey discovered that two-thirds of respondents think the economy is on the wrong track. Consumers are also concerned that they will get less money for their home than they would have during the summer.

Discouraged by today's housing market? Working with a professional, experienced real estate agent will help you achieve your goals in the least amount of time with the least amount of hassle. Contact me to see how I can help!

Mortgage Rates Rise

Fox Business reports that, as of June 17th 2013, mortgage rates had risen for six straight weeks. In early May, the fixed rate was 3.52%. The benchmark 30-year fixed-rate mortgage further increased from 4.1% to 4.14% within the past week (Bankrate.com). Until the first week of June, the fixed rate had been below 4% since May 2012, an entire year earlier. Mortgage rates are no longer near record lows, as markets react to the supposition that the Fed may soon reduce its $85-billion-per-month bond-buying program. This program has helped keep rates low; however, once the Fed determines that the economy has recovered well enough to support itself, the program may be reduced or abolished altogether. 

While it's unlikely rates will return to their recent lows, they may stabilize. John Stearns, a mortgage banker for American Fidelity Mortgage Services in Mequon, Wisconsin, claims that 4% for a 30-year fixed is going to become standard.

The recent increase in mortgage rates has caused some people to urgently refinance their homes, as they are concerned rates will continue to increase. Jim Sahnger, a mortgage loan originator for FBC Mortgage in Jupiter, Florida, points out that mortgage rates are constantly changing, and that what someone can get today may not be available tomorrow. 

There are different ways to interpret this news. While the latest rates are nearly half a percentage point more than rates were this time last year, they are still much lower than the 6-7% people with older loans may still be paying. 

Read the full article here.