Thursday, December 22, 2011

Mortgages rates fall to record lows — again


NEWS SUMMARY – From Freddie Mac’s weekly survey, the average 30-year fixed-rate mortgage fell to 3.91% this week — the lowest in at least four decades and the sixth such record this year. Interest charged on adjustable-rate mortgages (ARMs) likewise fell to record territory:  The 5-year ARM fell to a record-low 2.85% and the 1-year ARM fell to a record-low 2.77%. The 15-year fixed was unchanged from last week’s record low of 3.21%.
Rates on 30-year fixed mortgages been at or below 4% for the past two months, Freddie Mac reported. Payments on a $200,000 loan are now at least $100 a month lower than at the start of the year. (See chart upper right.)
WHAT I SEE – From rate sheets hitting my desk that are not part of Freddie Mac’s survey: A 10-year fully amortized fixed rate is available at 2.99 percent and 1 point. The 30-year conforming plus fixed rate ($417,001 to $625,500) is 3.875 percent and 1 points. A 15-year conforming plus fixed rate loan is at 3.25 percent and 1 point. FHA 30-year fixed jumbo ($417,001 to $729,750) is 3.75 percent and zero points.
WHAT I THINK – The Federal Housing Finance Agency is considering a 5-year reprieve from interest payments for underwater borrowers who file a Chapter 13 reorganization bankruptcy. This is for borrowers with federally insured loans. Congressional approval is not in play.
It sounds like you may have an opportunity of free rent for 5 years should you meet the criteria. It looks to me that the underlying issue is finding new solutions to end a further collapse in property values caused by underwater borrowers walking away. It’s estimated that 25% of all homes with mortgages are upside down.
Fannie Mae’s chief economist, Doug Duncan thinks there is a 40% chance of a double-dip recession next year.
All of this means definitely continued low rates next year.

Posted in: Lending/rates     

Saturday, December 10, 2011

House Prices Are Finally Nearing A Bottom – But Don’t Look For A Rapid Recovery

Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that "the bottom" in house prices is just around the corner - only to be wrong every time.
But now, finally, it looks as though house prices may actually be nearing a bottom.
Why?
Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching "normal" levels on two key valuation measures: The "price-to-rent ratio," which measures house prices relative to what the houses might rent for, and the "price-to-income ratio," which measures house prices relative to average incomes.
Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.
(To see a recent chart of the national price-to-rent and other ratios, please click here.)
House prices differ markedly depending on where you live, of course, and Goldman's analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.
Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don't stop at "average" levels on the way down. On the contrary, they often plunge straight through "fair value" and spend years below average levels. And that certainly could happen to house prices this time around.
But Goldman's economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman's economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.
Of course, even if house prices do bottom in 2013, that doesn't mean that they'll quickly shoot up again - or that housing will once again be the "great investment" that everyone thought it was back in the boom years.
One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing "affordability" is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable.
So it is likely that, even after they bottom, U.S. house prices will face headwinds for a long time.