Once again the nationwide Existing Home Sales numbers are grim, and once again the West is moving in the opposite direction. The headlines say that last month saw the sharpest decline in home sales on record and that the prices are also down by 13.2%, the largest percentage since they began keeping track.
A closer look at the data shows two very different trends blending together to give these numbers. The West was the only region to show an increase in existing home sales once again. In fact, the single family numbers in the west are up 19.8% over last year, which is actually pretty impressive.
Of course a lot of this is the result of dramatically lower prices as bank owned properties begin to move. Single Family Home prices were off by 25.5%, which is by far the most for any region.
Once again this looks like a "first in, first out" scenario. The super heated California markets that crashed first seem to be about a year ahead of the rest of the country and, hopefully, are already moving toward a recovery.
Once those markets burn through some of their inventory and find some stable footing, our own little market should bounce back as well since most of the new buyers in Southern Oregon are the sellers from California.
Tuesday, December 23, 2008
Friday, December 19, 2008
Rates Hit 37 Year Low
If you've been paying attention this week you know that mortgage rates fell to some pretty impressive levels. For a few hours on Wednesday you could lock in a rate lower than 4.5%, which is certainly something I've never seen. Apparently I'm not the only one. This weeks average is the lowest since Freddie Mac began tracking it in 1971, so it's definitely a big deal.
The interesting thing is that the amazing rates seem to be confined to the 30 year fixed. I don't know why lenders even show the hybrid ARM rates anymore. Why get a loan fixed for three to five years if the 30 year fixed rate is more than a point better?
Even the 15 year fixed rate is no better than a 30 year in this market. 15 year rates are usually at least 1/2% better than the 30 year, but this week there have been days where the 15 was actually worse.
This may reflect the secondary market's aversion to anything that isn't a traditional 30 year fixed rate loan. The interest only, adjustable, negative amortization type loans that have been making all the headlines have soured investors appetite for anything out of the ordinary. When some of the more exotic loans started going bad investors fled to the more conventional.
Fortunately for us, the 30 year fixed really is the best loan for most people in most circumstances. This week the phones are ringing with people wanting to refinance into a lower rate. Hopefully this will also bring some new buyers into the market, but even if all it does is to save homeowners a lot of money it might end up being a much needed stimulus for the economy.
The interesting thing is that the amazing rates seem to be confined to the 30 year fixed. I don't know why lenders even show the hybrid ARM rates anymore. Why get a loan fixed for three to five years if the 30 year fixed rate is more than a point better?
Even the 15 year fixed rate is no better than a 30 year in this market. 15 year rates are usually at least 1/2% better than the 30 year, but this week there have been days where the 15 was actually worse.
This may reflect the secondary market's aversion to anything that isn't a traditional 30 year fixed rate loan. The interest only, adjustable, negative amortization type loans that have been making all the headlines have soured investors appetite for anything out of the ordinary. When some of the more exotic loans started going bad investors fled to the more conventional.
Fortunately for us, the 30 year fixed really is the best loan for most people in most circumstances. This week the phones are ringing with people wanting to refinance into a lower rate. Hopefully this will also bring some new buyers into the market, but even if all it does is to save homeowners a lot of money it might end up being a much needed stimulus for the economy.
Tuesday, December 16, 2008
Doom + Gloom = Time to Buy?
Once again all the economic headlines today are glum. The Consumer Price Index was down 1.7% and flat when you exclude food and energy. This is the largest decline since they started seasonally adjusting the number in 1947. Housing starts also set a record today by dropping 18.9% to the lowest level since they started keeping track in 1959.
Of course this is all bad news for the larger economy. However, there are some glimmers here for housing. First, the CPI numbers hint at deflation and certainly show no signs of inflation, which is the best possible news for mortgage rates. Rates have been falling lately and this news makes it likely that they will continue or at least hold steady at these low levels.
Housing starts indicate that builders are not very confident, and less construction will mean painful job losses. In the long term it also means fewer new houses going into an already glutted market. Inventories of unsold homes are a big part of the problem with the housing market, so fewer new homes means at least we're not adding to the problem.
All this gloom does create an opportunity for buyers. Prices are low, there's plenty of selection, and mortgage rates are great. If these factors are enough to bring first time buyers into the market it could go a long way to fixing the housing market. Locally we are starting to see some of the first time buyers who had been priced out of the market during the peak.
Years from now I imagine people will be looking back thinking "if I'd only bought back then..." Aside from the investment angle, housing is actually affordable again for people living here in Southern Oregon, which was really not the case when prices were high. Sure, people who owned a home could sell it and buy another, but the new buyers were almost all from out of state. Now, between the prices and the rates, may be time again for renters to become buyers.
Of course this is all bad news for the larger economy. However, there are some glimmers here for housing. First, the CPI numbers hint at deflation and certainly show no signs of inflation, which is the best possible news for mortgage rates. Rates have been falling lately and this news makes it likely that they will continue or at least hold steady at these low levels.
Housing starts indicate that builders are not very confident, and less construction will mean painful job losses. In the long term it also means fewer new houses going into an already glutted market. Inventories of unsold homes are a big part of the problem with the housing market, so fewer new homes means at least we're not adding to the problem.
All this gloom does create an opportunity for buyers. Prices are low, there's plenty of selection, and mortgage rates are great. If these factors are enough to bring first time buyers into the market it could go a long way to fixing the housing market. Locally we are starting to see some of the first time buyers who had been priced out of the market during the peak.
Years from now I imagine people will be looking back thinking "if I'd only bought back then..." Aside from the investment angle, housing is actually affordable again for people living here in Southern Oregon, which was really not the case when prices were high. Sure, people who owned a home could sell it and buy another, but the new buyers were almost all from out of state. Now, between the prices and the rates, may be time again for renters to become buyers.
Monday, December 8, 2008
4.5% Mortgage Rates?
By now everyone has heard that the Treasury Department is considering plans to push mortgage rates to 4.5% in an effort to stimulate the housing market. While this sounds like a good idea, there are some real problems with it.
The biggest problem is that the government doesn't control mortgage rates. Mortgage rates are set by the market based on what investors will buy and sell mortgage backed securities for. It's kind of like the government saying they plan to move the Dow Jones back over 10,000. Maybe they could do it by buying enough stock, or in the case of interest rates buying enough mortgage backed securities, to move the overall market. Maybe that would work, but maybe it wouldn't. It's not like the Fed Funds rate that can be arbitrarily set.
Beyond that you have to wonder how much it would even help. Mortgage rates are already hovering around 5%. Would an extra 1/2% (about $60 a month on a $200,000 loan) really be enough to bring out the buyers? If you can't afford a $1,200 PITI payment, would $1,140 make a difference?
This plan was floated as a way to help struggling homeowners, but apparently the 4.5% is only for new purchases. People who need to refinance to be able to stay in their homes won't benefit, unless of course some new buyer comes along to save the day.
Of course, as a mortgage broker I am all in favor of lower rates. I just don't think lower rates will fix the housing market. Rates have actually been pretty good through this whole crisis. I'm sure a 4.5% rate wouldn't hurt, but I don't think it's worth the cost in taxpayer dollars.
Borrowing and spending money the government doesn't have is not only expensive, it leads to inflation down the road, which is a real long term threat to interest rates. I also have some concerns about what happens when the crisis is over and the Treasury Department decides to dump all these securities. It seems like there's the potential to do a lot of long term damage for a potentially insignificant short term gain.
The biggest problem is that the government doesn't control mortgage rates. Mortgage rates are set by the market based on what investors will buy and sell mortgage backed securities for. It's kind of like the government saying they plan to move the Dow Jones back over 10,000. Maybe they could do it by buying enough stock, or in the case of interest rates buying enough mortgage backed securities, to move the overall market. Maybe that would work, but maybe it wouldn't. It's not like the Fed Funds rate that can be arbitrarily set.
Beyond that you have to wonder how much it would even help. Mortgage rates are already hovering around 5%. Would an extra 1/2% (about $60 a month on a $200,000 loan) really be enough to bring out the buyers? If you can't afford a $1,200 PITI payment, would $1,140 make a difference?
This plan was floated as a way to help struggling homeowners, but apparently the 4.5% is only for new purchases. People who need to refinance to be able to stay in their homes won't benefit, unless of course some new buyer comes along to save the day.
Of course, as a mortgage broker I am all in favor of lower rates. I just don't think lower rates will fix the housing market. Rates have actually been pretty good through this whole crisis. I'm sure a 4.5% rate wouldn't hurt, but I don't think it's worth the cost in taxpayer dollars.
Borrowing and spending money the government doesn't have is not only expensive, it leads to inflation down the road, which is a real long term threat to interest rates. I also have some concerns about what happens when the crisis is over and the Treasury Department decides to dump all these securities. It seems like there's the potential to do a lot of long term damage for a potentially insignificant short term gain.
Monday, November 24, 2008
Another Solid Month for Home Sales
The October existing home sales numbers look a lot like September: flat overall but with big gains in the west. Across the country existing homes sales were down 1.6% versus last year and were flat at 0% for single family homes only. However, the west saw a 37.5% increase overall and 38.8% for single family homes.
Of course this means that the rest of the country is doing worse than they were at this time last year, but we're focusing on Oregon so we'll call it good news. Last month's numbers were very similar, so now we have two solid months of sales growth in a row.
There's still a lot of inventory out there, but these are the kind of sales numbers we need to burn through it. Prices are still down significantly, but once again selling through the inventory is the only way to bring the market back in balance to where we can see prices recover.
It seems possible now that the volatile markets out west that were the first to fall may also be the first to recover. Let's hope the trend continues as the big California markets are a good part of what drives our small Oregon market.
Of course this means that the rest of the country is doing worse than they were at this time last year, but we're focusing on Oregon so we'll call it good news. Last month's numbers were very similar, so now we have two solid months of sales growth in a row.
There's still a lot of inventory out there, but these are the kind of sales numbers we need to burn through it. Prices are still down significantly, but once again selling through the inventory is the only way to bring the market back in balance to where we can see prices recover.
It seems possible now that the volatile markets out west that were the first to fall may also be the first to recover. Let's hope the trend continues as the big California markets are a good part of what drives our small Oregon market.
Friday, November 21, 2008
New Good Faith Estimate
In an effort to help consumers better understand the terms of their mortgages before they close, HUD has come up with a new standardized Good Faith Estimate for everyone to use by January of 2010. The goal is to make sure that all the terms of the loan are clearly disclosed.
Here is a link so you can see the proposed form for yourself.
This new form includes everything from the old GFE plus a lot of other information already disclosed on other required forms. There are check boxes to indicate if your loan is adjustable or has features like a balloon payment or a prepayment penalty. It also groups different categories of fees in ways that make more sense and further clarifies the total amount of broker compensation.
One new bit of information is the Tradeoff Table. This table compares the loan you are actually getting to two other available options. First is the same loan with lower fees (and therefore a higher rate), and the other is the same loan with a lower rate (and therefore higher fees). It's an interesting comparison and will help to demystify the famous "no-fee" loans by clearly showing how you pay those fees through a higher rate.
While I'm certain the regulators mean well, they clearly haven't spent enough time in the real world with actual borrowers to be able to do it well. If the problem is that consumers are taking loans that they don't fully understand, adding more paperwork is not the solution.
Anyone who has been through a package of loan documents can tell you that the reason people don't read and understand everything is that there is simply too much of it. Many concepts, like the need to maintain homeowners insurance, are covered by at least three separate forms. There are disclosures on everything imaginable, including my favorite form which advises borrowers that failing to make payments on time may result in negative information being reported to credit bureaus. Wow! Who knew!
The only way to make sure that borrowers are getting loans that they understand and that are the best loans for their particular circumstances is for them to work with a trustworthy loan officer. Since that's impossible to legislate, we have to make due with better disclosure. However, more paperwork does not necessarily result in better disclosure.
A better solution might be to get rid of 90% of the current pile of required forms in favor of 5 or 10 new ones that are clear, easy to understand, and cover all the important issues. That way critical information wouldn't be buried under an endless stack of disclosures. I'm interested to hear your thoughts on this.
Here is a link so you can see the proposed form for yourself.
This new form includes everything from the old GFE plus a lot of other information already disclosed on other required forms. There are check boxes to indicate if your loan is adjustable or has features like a balloon payment or a prepayment penalty. It also groups different categories of fees in ways that make more sense and further clarifies the total amount of broker compensation.
One new bit of information is the Tradeoff Table. This table compares the loan you are actually getting to two other available options. First is the same loan with lower fees (and therefore a higher rate), and the other is the same loan with a lower rate (and therefore higher fees). It's an interesting comparison and will help to demystify the famous "no-fee" loans by clearly showing how you pay those fees through a higher rate.
While I'm certain the regulators mean well, they clearly haven't spent enough time in the real world with actual borrowers to be able to do it well. If the problem is that consumers are taking loans that they don't fully understand, adding more paperwork is not the solution.
Anyone who has been through a package of loan documents can tell you that the reason people don't read and understand everything is that there is simply too much of it. Many concepts, like the need to maintain homeowners insurance, are covered by at least three separate forms. There are disclosures on everything imaginable, including my favorite form which advises borrowers that failing to make payments on time may result in negative information being reported to credit bureaus. Wow! Who knew!
The only way to make sure that borrowers are getting loans that they understand and that are the best loans for their particular circumstances is for them to work with a trustworthy loan officer. Since that's impossible to legislate, we have to make due with better disclosure. However, more paperwork does not necessarily result in better disclosure.
A better solution might be to get rid of 90% of the current pile of required forms in favor of 5 or 10 new ones that are clear, easy to understand, and cover all the important issues. That way critical information wouldn't be buried under an endless stack of disclosures. I'm interested to hear your thoughts on this.
What is Yield Spread Premium?
Yield Spread Premium (YSP) is a fee paid by the lender to the originator when a loan closes. There has been a lot of talk lately about this once obscure topic as regulators look for ways to reign in predatory lending. While YSP can be abused, it is not always bad and has many consumer-friendly uses.
First, it's useful to understand the way mortgages are priced at the wholesale level. There is no such thing as "the rate" on any given day. Here is a sample of an interest rate grid for a conventional 30 year fixed mortgage:
The numbers to the right of each rate represent the cost (discount points) or rebate (YSP) for that rate and lock term (15 or 30 days) expressed in points. A point is one percent of the loan amount ($1,000 on a $100,000 loan). So at it's simplest, the rate today would be 6.375% if you were to lock for 30 days. The zero in that column means that there is no cost or rebate for that rate. If you wanted to buy your rate down to 6.0%, you would have to pay an additional 1 point as a discount fee at closing. If, on the other hand, you were to lock at 6.75%, the originator would have 1.125 points rebate to play with.
Of course, nothing is ever as simple as it seems. There are nearly always pricing adjusters having to do with the particulars of each loan. Some examples of factors that can affect pricing include loan-to-value ratio, credit score, loan amount, occupancy, and many others. Those pricing adjustments are given in points as well, so one good use of YSP is to offset those adjustments. The non-owner-occupied adjustment, for example, is 1.75 points, which can be several thousand dollars on an average sized loan. Most borrowers would prefer to take the 7.125% interest rate, which pays that 1.75 point fee, rather than paying it out of pocket.
Another legitimate use can be offering a "no-fee loan." No-fee loans are not for everyone, in fact they are not for most consumers, but that's a topic for another day. A no-fee loan is where you pay a higher interest rate and that YSP, the negative numbers on the chart above, is used to pay some or all of your closing costs.
The problems arise when you pay the higher rate and don't get any benefit. In these cases it's the loan originator who pockets the money. On the chart above, for example, if you paid your 1 point origination fee and still got a 7.0% rate, that lender would gross 2.5 points total on your loan. This can create an incentive for unscrupulous loan officers to sell higher rates than the borrower qualifies for which, of course, is a real problem.
I'll leave ideas on how to solve this problem for another day. For now I think understanding what Yield Spread Premium is and how it works is enough for one post, and of course this is just a very basic outline. I welcome your comments and questions.
First, it's useful to understand the way mortgages are priced at the wholesale level. There is no such thing as "the rate" on any given day. Here is a sample of an interest rate grid for a conventional 30 year fixed mortgage:
The numbers to the right of each rate represent the cost (discount points) or rebate (YSP) for that rate and lock term (15 or 30 days) expressed in points. A point is one percent of the loan amount ($1,000 on a $100,000 loan). So at it's simplest, the rate today would be 6.375% if you were to lock for 30 days. The zero in that column means that there is no cost or rebate for that rate. If you wanted to buy your rate down to 6.0%, you would have to pay an additional 1 point as a discount fee at closing. If, on the other hand, you were to lock at 6.75%, the originator would have 1.125 points rebate to play with.Of course, nothing is ever as simple as it seems. There are nearly always pricing adjusters having to do with the particulars of each loan. Some examples of factors that can affect pricing include loan-to-value ratio, credit score, loan amount, occupancy, and many others. Those pricing adjustments are given in points as well, so one good use of YSP is to offset those adjustments. The non-owner-occupied adjustment, for example, is 1.75 points, which can be several thousand dollars on an average sized loan. Most borrowers would prefer to take the 7.125% interest rate, which pays that 1.75 point fee, rather than paying it out of pocket.
Another legitimate use can be offering a "no-fee loan." No-fee loans are not for everyone, in fact they are not for most consumers, but that's a topic for another day. A no-fee loan is where you pay a higher interest rate and that YSP, the negative numbers on the chart above, is used to pay some or all of your closing costs.
The problems arise when you pay the higher rate and don't get any benefit. In these cases it's the loan originator who pockets the money. On the chart above, for example, if you paid your 1 point origination fee and still got a 7.0% rate, that lender would gross 2.5 points total on your loan. This can create an incentive for unscrupulous loan officers to sell higher rates than the borrower qualifies for which, of course, is a real problem.
I'll leave ideas on how to solve this problem for another day. For now I think understanding what Yield Spread Premium is and how it works is enough for one post, and of course this is just a very basic outline. I welcome your comments and questions.
Wednesday, November 19, 2008
Record Decline in Key Inflation Index
The Consumer Price Index was down by a full 1% for October. This is the largest decline since the government began keeping records in 1947. Much of the decrease is attributed to the drop in gas prices, but even the core rate, which excludes volatile food and energy, was down by 0.1%. The drop in the core rate is significant since it's the first time that index has declined since 1982.
This news follows the Producer Price Index's own record drop of 2.8% on Tuesday the 18th. The Consumer Price Index along with the Producer Price Index are two of the main indicators of inflation, and inflation is among the most significant factors that influence mortgage rates.
Inflation eats away at the value of fixed rate investments like mortgages. It's easy to see why nobody wants to lend money at 5% if inflation is 6%. In economic times like these, inflation is typically not a concern and long term rates tend to benefit.
So while today's news may not be good news for your stock portfolio, it's great news if you're looking to lock in a low fixed rate. Sure enough, this morning's mortgage rates are looking better than they did yesterday. The threat of deflation and the damage it can do to the economy is likely to be the headline today, but the combination of lower prices and lower interest rates can actually be a boon to potential home buyers.
This news follows the Producer Price Index's own record drop of 2.8% on Tuesday the 18th. The Consumer Price Index along with the Producer Price Index are two of the main indicators of inflation, and inflation is among the most significant factors that influence mortgage rates.
Inflation eats away at the value of fixed rate investments like mortgages. It's easy to see why nobody wants to lend money at 5% if inflation is 6%. In economic times like these, inflation is typically not a concern and long term rates tend to benefit.
So while today's news may not be good news for your stock portfolio, it's great news if you're looking to lock in a low fixed rate. Sure enough, this morning's mortgage rates are looking better than they did yesterday. The threat of deflation and the damage it can do to the economy is likely to be the headline today, but the combination of lower prices and lower interest rates can actually be a boon to potential home buyers.
Tuesday, November 18, 2008
Home Sales Rise, Especially in the West
The existing home sales figures put out by the National Association of Realtors had some good news last month. The overall sales figure was up 1.4% versus the same month last year. While that's not exactly a huge increase, it is a positive number.
The better news comes from a closer look at the data. While most regions of the country actually saw a decrease, in the West the increase was 34.4% over last year. Now that is something to get excited about.
Granted, Southern Oregon is a very small part of the West. However, if the big markets in California can mount a recovery, that will certainly be good news for us. Other good news is starting to trickle out of California. Unsold inventories are dropping as well, which only makes sense when sales are up. Inventories are down 21% in San Diego, 21.6% in Orange County and 32.1% in Sacramento.
One month's worth of sales figures is not enough to really call it a recovery, but if this keeps up we could be seeing light at the end of the tunnel for our local market as well. Check back here for next months existing home sales figures which are due out on November 24th.
The better news comes from a closer look at the data. While most regions of the country actually saw a decrease, in the West the increase was 34.4% over last year. Now that is something to get excited about.
Granted, Southern Oregon is a very small part of the West. However, if the big markets in California can mount a recovery, that will certainly be good news for us. Other good news is starting to trickle out of California. Unsold inventories are dropping as well, which only makes sense when sales are up. Inventories are down 21% in San Diego, 21.6% in Orange County and 32.1% in Sacramento.
One month's worth of sales figures is not enough to really call it a recovery, but if this keeps up we could be seeing light at the end of the tunnel for our local market as well. Check back here for next months existing home sales figures which are due out on November 24th.
Was That The Bottom?
Everyone knows that housing prices have been pummeled lately. Whether the falling prices are causing the foreclosures or the foreclosures are causing the drop in prices is really just academic at this point. The fact is each problem is feeding the other in a vicious cycle that won't end, well, until it ends.
In the long run, real estate values will recover and continue to climb. Our population continues to grow, and people have to live somewhere. Or, in the famous words of Will Rogers, ''The best investment is land, because they ain't making anymore of it.'' The question is really when will the market turn around.
Accurately predicting the bottom can be very profitable. "Buy low, sell high" is still the best investment advice ever written. On the other hand, missing the bottom can be a disaster. Just ask anyone who bought too much house a couple years ago hoping to sell for a tidy profit in a few short months. That's why they call it speculation...
That being said, trying to time the real estate market is really no better than timing the stock market. Market timers typically lose in the end. Once again, see the last two years. The real question investors need to ask themselves is "can I afford this?"
Whether you're buying a home for your family to live in or an investment property to rent or sell for a profit, you need to know that you can make the payments. Investing based on the assumption that you can sell it next year is a great way to end up as the latest foreclosure statistic. While that kind of investing may work out, you need to go into it with the assumption that it won't. If you plan based on getting stuck with the property, you can't lose.
This is especially true for owner occupied homes. You have to pay to live somewhere. If the payment works for your budget, then it really doesn't matter what the value is. Whether you make money or lose money when you sell is really irrelevant if you're buying again in the same market. The money you make on the sale is just funny money if you're having to spend it all on the house you're buying. It's the same if you lose money selling but get a screaming deal on the buy. Unless you're moving out of the area, making or losing money on your own home is just numbers on paper. Which is why, once again, the main priority needs to be whether or not you can afford it.
As to the question of when we will see (or have seen) the bottom, for most of us that is the wrong question. Leveraged investing based on assumptions about the future of the market is what created the current crisis. If you bet on a bottom and miss or simply can't afford to ride it out, you lose. Don't try to time the market. Invest based on what you can actually afford and you will make money no matter when the bottom hits.
In the long run, real estate values will recover and continue to climb. Our population continues to grow, and people have to live somewhere. Or, in the famous words of Will Rogers, ''The best investment is land, because they ain't making anymore of it.'' The question is really when will the market turn around.
Accurately predicting the bottom can be very profitable. "Buy low, sell high" is still the best investment advice ever written. On the other hand, missing the bottom can be a disaster. Just ask anyone who bought too much house a couple years ago hoping to sell for a tidy profit in a few short months. That's why they call it speculation...
That being said, trying to time the real estate market is really no better than timing the stock market. Market timers typically lose in the end. Once again, see the last two years. The real question investors need to ask themselves is "can I afford this?"
Whether you're buying a home for your family to live in or an investment property to rent or sell for a profit, you need to know that you can make the payments. Investing based on the assumption that you can sell it next year is a great way to end up as the latest foreclosure statistic. While that kind of investing may work out, you need to go into it with the assumption that it won't. If you plan based on getting stuck with the property, you can't lose.
This is especially true for owner occupied homes. You have to pay to live somewhere. If the payment works for your budget, then it really doesn't matter what the value is. Whether you make money or lose money when you sell is really irrelevant if you're buying again in the same market. The money you make on the sale is just funny money if you're having to spend it all on the house you're buying. It's the same if you lose money selling but get a screaming deal on the buy. Unless you're moving out of the area, making or losing money on your own home is just numbers on paper. Which is why, once again, the main priority needs to be whether or not you can afford it.
As to the question of when we will see (or have seen) the bottom, for most of us that is the wrong question. Leveraged investing based on assumptions about the future of the market is what created the current crisis. If you bet on a bottom and miss or simply can't afford to ride it out, you lose. Don't try to time the market. Invest based on what you can actually afford and you will make money no matter when the bottom hits.
New FHA Loan Limits
New limits for FHA loans are going into effect January 1st of 2009. The new limits are higher than the old base limits but, in most cases, lower than the temporary limits put in place during 2008. We can still use the old temporary limits as long as we have a loan approval, purchase contract, and FHA case number in place before the end of the year.
The new loan limits for counties in Southern Oregon are as follows:
For Douglas and Klamath Counties the limits are unchanged. The temporary loan limit in Josephine County is $325,000 and in Jackson County it is $422,500 through the end of 2008.
In the current mortgage market, FHA has emerged as one of the most aggressive loan programs available. Buyers with less than perfect credit can buy a home with a 3% down payment, and even that 3% can be a gift. FHA is also a good option for refinances as the loan to value ratios are very flexible and you can even refinance a house that has been recently listed for sale. The property requirements have been relaxed recently and sellers are no longer required to pay any buyer's closing costs. Throw in fixed rates that often beat conforming - especially at higher loan-to-value ratios - and you can see why FHA is more important than ever.
The new loan limits for counties in Southern Oregon are as follows:
Josephine: $271,050
Jackson: $279,450
Douglas: $271,050
Klamath: $271,050
Jackson: $279,450
Douglas: $271,050
Klamath: $271,050
For Douglas and Klamath Counties the limits are unchanged. The temporary loan limit in Josephine County is $325,000 and in Jackson County it is $422,500 through the end of 2008.
In the current mortgage market, FHA has emerged as one of the most aggressive loan programs available. Buyers with less than perfect credit can buy a home with a 3% down payment, and even that 3% can be a gift. FHA is also a good option for refinances as the loan to value ratios are very flexible and you can even refinance a house that has been recently listed for sale. The property requirements have been relaxed recently and sellers are no longer required to pay any buyer's closing costs. Throw in fixed rates that often beat conforming - especially at higher loan-to-value ratios - and you can see why FHA is more important than ever.
Monday, November 17, 2008
When Should I Lock My Rate?
As a mortgage professional, I am asked all the time by clients if they should lock now or wait. Unfortunately, there is no easy answer. Interest rates are determined by the market and can change frequently. The market has been particularly volatile in these last few weeks and months with all that's going on in the mortgage market.
Mortgage rates come from the sale of mortgage backed bonds like Fannie, Freddie, and GNMA (for government loans) bonds. Typically bonds and stocks move in opposite directions, so a bad day for stocks may be a good day for bonds and, therefore, rates. This year with all the drama in the mortgage market there have been many days where both stocks and bonds do poorly, but it's still a good general rule. Another good rule is that mortgage rates are hurt by inflation. Anything that suggests inflation is on the way will typically be bad for rates, so if you want to pay close attention to the market to time your lock, look for news that hurts stocks and beware of the hint of inflation.
In this volatile market, the best rule on when to lock is to lock as soon as you can if you can get a rate you like. Rates can change dramatically in a short time, sometimes within hours. Some people are gamblers and like to wait to pounce on the best possible rate while others prefer to play it safe and lock early. The question one must ask, in the immortal words of Dirty Harry, is "Do I feel lucky?"
As a borrower, you have plenty of time to decide. Any time between the point when you know your closing date and when you order loan documents is your window. If you enjoy playing the market and can afford to lose, then go ahead and do it. If you're more conservative and don't want the risk, lock early.
One advantage of using a mortgage broker is that they have more than one lender to choose from. Most lenders pricing on conforming loans will be within 0.125% on any given day. The real advantage is that you can lock early and then, if there is a significant improvement in rates and enough time before closing, switch to a different lender to get the better rate. Once you lock with one particular bank or lender you're locked, but by switching lenders a broker can provide the safety of an early lock with the flexibility to take advantage of market changes.
The most important thing to keep in mind is that it is really your decision. Nobody can predict where rates will be tomorrow, not your mortgage broker, investment advisor, realtor or any of the talking heads on TV. Assuming you don't have a good psychic, your decision on when to lock should be based more on your tolerance for risk than on which way you think the market is going.
Mortgage rates come from the sale of mortgage backed bonds like Fannie, Freddie, and GNMA (for government loans) bonds. Typically bonds and stocks move in opposite directions, so a bad day for stocks may be a good day for bonds and, therefore, rates. This year with all the drama in the mortgage market there have been many days where both stocks and bonds do poorly, but it's still a good general rule. Another good rule is that mortgage rates are hurt by inflation. Anything that suggests inflation is on the way will typically be bad for rates, so if you want to pay close attention to the market to time your lock, look for news that hurts stocks and beware of the hint of inflation.
In this volatile market, the best rule on when to lock is to lock as soon as you can if you can get a rate you like. Rates can change dramatically in a short time, sometimes within hours. Some people are gamblers and like to wait to pounce on the best possible rate while others prefer to play it safe and lock early. The question one must ask, in the immortal words of Dirty Harry, is "Do I feel lucky?"
As a borrower, you have plenty of time to decide. Any time between the point when you know your closing date and when you order loan documents is your window. If you enjoy playing the market and can afford to lose, then go ahead and do it. If you're more conservative and don't want the risk, lock early.
One advantage of using a mortgage broker is that they have more than one lender to choose from. Most lenders pricing on conforming loans will be within 0.125% on any given day. The real advantage is that you can lock early and then, if there is a significant improvement in rates and enough time before closing, switch to a different lender to get the better rate. Once you lock with one particular bank or lender you're locked, but by switching lenders a broker can provide the safety of an early lock with the flexibility to take advantage of market changes.
The most important thing to keep in mind is that it is really your decision. Nobody can predict where rates will be tomorrow, not your mortgage broker, investment advisor, realtor or any of the talking heads on TV. Assuming you don't have a good psychic, your decision on when to lock should be based more on your tolerance for risk than on which way you think the market is going.
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