Existing Home Sales Blow Past Expectations

Another month, another piece of evidence that the housing market is in recovery.

Existing Home Sales surged in October as the nation's homebuyers took advantage of low mortgage rates, low list prices, and, for some, a generous tax credit.

Home resales are 23 percent higher versus a year ago and home supply is down to 7 months nationwide.

Inventory hasn't been this low since February 2007.

The news shouldn't be surprising, however.  The same real estate trade group that produces the Existing Home Sales report also publishes a monthly report meant to predict future home sales called the Pending Home Sales Index.

Pending Home Sales have been through the roof since mid-May.

So, with pending home sales showing no signs of slowing and 80% of pendings turning into actual, closed sales, we can expect existing home sales volume to rise in the coming months, too.  Especially because Congress extended the home buyer tax credit to include (1) "Move-up" buyers and, (2) Buyers with higher household incomes.

It's terrific news for home sellers. The housing market turnaround means higher sale prices and fewer concessions to buyers long-term.

To buyers, on the other hand, the news isn't so good. The window to find a "deal" appears to be closing quickly.

Simple Real Estate Definitions : APR

APR is an acronym for Annual Percentage Rate.  It's a government-mandated calculation meant to simplify the comparison of mortgage options.

A loan's APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan's interest rate.  It's not.  APR represents the total cost of borrowing over the life of a loan.  "Interest rate" is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an "apples-to-apples" comparison between loan products. 

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees.  In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations.  By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, "life of the loan" is assumed to be full-term.  When a 30-year mortgage pays off in 7 years or fewer -- as most of them do -- APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages -- it's not the only metric.  The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

Are There Any Foreclosure Deals Left?

For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.

As reported by RealtyTrac.com, more than half of October's foreclosure-related activity came from just 4 states:

1. California
   
2. Florida
   
3. Illinois
   
4. Michigan

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.

1. Foreclosure activity is down 3 percent from last month
   
2. Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada's foreclosure pace is down 4% from last year.  This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada's year-to-year foreclosure rate hadn't fallen in more than 4 years.

It's too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by.  First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn't for everyone.

For one, properties are often sold as-is and may be defective.  The cost of repairs may negate "the deal" or "the steal" -- depending on the cost of the home.

Secondly, closing on a foreclosed home can be a 3-month long process. This is because banks rarely process home sale paperwork as fast as a "person" would. A 3-month timeframe may not fit your schedule.

In the end, fundamentally, buying a foreclosed home is the same as buying a "regular" home -- there's a contract and a closing.  Most of the steps in the middle, however, are different. 

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website.  If you like what you see, talk to your real estate agent about what to do next.

There's still good deals in the foreclosure market, but based on October's data, they may not last through the winter.

Banks Raise Mortgage Qualification Standards

Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet.

Nationally, mortgage approval standards are tightening.

The data comes from a quarterly survey the Federal Reserve sends to its member banks.  The Fed asks senior bank loan officers around the country whether "prime" residential mortgage guidelines had tightened in the last 3 months.

For the period July-September 2009:

• Roughly 1 in 4 banks said guidelines tightened
  
• Roughly 3 in 4 banks said guidelines were "basically unchanged"

Just one bank said its guidelines had loosened.

Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.

Today's borrowers face a host of hurdles including:

• Higher minimum FICO scores
  
• Larger downpayment requirements for purchases
  
• Larger equity positions for refinances
  
• Lower debt-to-income ratios

In other words, mortgage rates may stay low into 2010, but that won't matter to homeowners that don't meet minimum eligibility standards.  With each passing quarter, that list gets smaller.

Therefore, if you're on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too. 

Acting sooner is probably better than acting later.

FHA Streamline Refinance Program : There's 5 Days Left

>Consider this a last call for FHA Streamline Refinances.  Starting next Tuesday, the popular rate-lowering program gets strict on borrowers.

There's 5 days left.

Under the current streamline refi guidelines, FHA homeowners have minimal program eligibility requirements.

• FICO scores must be 620 or higher
  
• The refinance must provide a "tangible benefit"
  
• No mortgage lates allowed in the last 12 months

Beyond that, everything else goes, practically.  There's no income, asset, or job verification with the current FHA Streamline program. Neither is there an appraisal requirement.  It doesn't matter if you're 50% underwater.

Until next week, that is. 

Beginning November 17, FHA Streamline Refinance applicants must show evidence of income and employment, plus proof of cash required to close. Furthermore, the FHA is limited loan-to-values to 97.75% for homeowners that want to "roll closing costs" into their mortgage.

In areas of declining home values, this may render refinancing impossible.

There's more changes, too, as highlighted by the Federal Housing Commissioner. Read up for yourself, or ask a mortgage professional for help.

If you're a homeowner and you're currently financed through the FHA, it may be prudent to explore the possibility of an FHA Streamline Refi.  Mortgage rates are low right now and FHA guidelines are loose.

Starting next week, FHA Streamlines will be a completely different beast.

What's Ahead For Mortgage Rates This Week : November 9, 2009

Mortgage markets were extremely volatile last week, carving out a wide range between Monday and Friday. 

Thankfully for rate shoppers, the overall momentum was positive.

Mortgage rates fell for the second time in as many weeks. Rates still sit higher versus their early-October lows.

For pure "news", last week was a busy one:

• The Federal Reserve held the Fed Funds Rate near 0.000 percent
  
• The Unemployment Rate crossed 10 percent
  
• The First-Time Home Buyer Tax Credit was extended to April 2010

Combined, the 3 events reinforced the growing belief on Wall Street that the U.S. economy is in recovery, but not yet out of the woods.  This particular philosophy has been excellent for mortgage rates, helping to hold conforming 30-year fixed mortgage rates near 5.250 percent since the start of the year. 

It helped rates last week, too.  But low rates aren't without threats. 

For one, the Fed's vote to hold the Fed Funds Rate near 0.000 percent will eventually spark inflation concerns.  When it does, mortgage rates will rise. That won't be this week, though.

Actually, nothing may happen this week -- there's not much data to release.  Apart from a retail report, a confidence survey and some Fed speakers, the calendar is bare.  That, and Wednesday is a federal holiday.

However, without data, markets often trade on things like geopolitics, or energy concerns, or momentum.  In other words, don't be lulled into thinking rates won't change this week.

At least for now, the mortgage rates look good. By the end of the week, that may not be the case.

Congress Expands And Extends The First-Time Home Buyer Tax Credit

Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday. 

The White House says the President will sign it into law today.

The up-to-$8000 tax credit's expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.

The program's basic eligibility requirements remain the same:

• Buyers can't purchase the home from a parent, spouse, or child
  
• Buyers can't purchase the home from an entity in which they're a majority owner
  
• Buyers can't acquire the home by gift or inheritance
  
• All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however. 

For one, the definition of "first-time home buyer" has been expanded to include most homeowners with at least 5 years in their current home.  "Move-up" buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.

This means that you don't have to be a true first-time home buyer to claim the "first-time home buyer tax credit".

Other eligibility changes include:

• The subject property's sales price may not exceed $800,000
  
• The subject property must be a primary residence
  
• Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer

And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction.  This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his "normal" tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.

The complete list of qualifying criteria is posted on the IRS website.  Be sure to review it with a tax professional to determine your eligibility.  Then mark your calendar for April 30, 2010.

It's 5 months away.

A Simple Explanation Of The Federal Reserve Statement (November 4, 2009 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy "has continued to pick up" since the September FOMC meeting and that housing market activity has increased.

It's the third consecutive post-FOMC statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the recession is likely over.

The economy isn't without threats, however, and the Fed identified several in its announcement, including:

1. Ongoing job losses for American workers
   
2. Reduced fixed investment by businesses
   
3. Ongoing challenges for the financial markets

The overall tone remained positive, however, as inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.

The Fed plans to wind down its mortgage market support over the next 5 months, reaffirming its March 2010 exit date.  For now, Fed support helps hold mortgage rates down.

Mortgage market reaction to the Fed's press release is negative overall.  Mortgage rates are rising.

The FOMC's next scheduled meeting is December 15-16, 2009.

Because Of The Federal Reserve, You Should Lock Before 2:15 PM ET Today

The Federal Open Market Committee caps off a scheduled, 2-day meeting today in the nation's capital, its 8th meeting of the year.

The group adjourns at 2:15 PM ET and, as is customary, will issue a press release reviewing its monetary policy and the health of the U.S. economy. 

The FOMC's post-meeting statements are brief but comprehensive. They're a window into the mind of the Federal Reserve and Wall Street picks apart every sentence for clues.

It's why FOMC meetings tend to shake up the mortgage markets -- for good and for bad. 

After its September 2009 meeting, the FOMC said in its press release:

1. Financial markets have improved
   
2. Housing activity has increased
   
3. Economic activity has "picked up"

Since September, the momentum has picked up.  Credit risks have reduced further, home sales are surging, and, although unemployment remains high, the Fed remains optimistic about a full economic recovery.

Today's FOMC press release will be closely watched. If the Fed alludes to strong growth with inflation in 2010, mortgage rates should rise. Reference to slower growth should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent -- the lowest it's been in history.  However, it's what the Fed says Wednesday that will matter more than what it does.

If you're floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.

Higher Home Prices Ahead, Says The Pending Home Sales Index

The housing market continues to steam forward.

As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 8th consecutive monthly gain in September.

It's the longest winning streak in the history of the index and Pending Home Sales are now at their highest levels since December 2006.

A Pending Home Sale is a home under contract to sell, but not yet closed.  It's the precursor to an Existing Home Sale. 

Trade group data shows that nearly 80 percent of "pending" homes close within 2 months.  The majority of those remaining close within months 3 and 4.

When the Pending Home Sales Index rises, it tells us that market activity has picked up.  September's data confirms what we've been noticing since February -- the Buyers Market is ending.

With more homes under contract in the marketplace, homebuyers typically face one or more of the following:

   1. Competitive, multiple-offer situations
   2. Reduced purchase price leverage over sellers
   3. Fewer seller concessions

Therefore, if you're buying a home in the next several months, know that the 8-month run in Pending Sales will lead to a run in closed sales.  It should result in higher home prices, too

Indeed, we're already seeing it.

What's Ahead For Mortgage Rates This Week : November 2, 2009

Mortgage markets improved last week after a series of hugely volatile trading sessions. 

Rates carved out a wide range on the week, culminating in a late-Friday plunge that dropped rates by about 1/8 percent.

It was the first time in 5 weeks that mortgage rates fell.

Volatility like that of last week is nothing new on Wall Street; it's been a running theme in 2009.  Volatility occurs when markets don't agree on what's next for the economy and, this year, there's been a lot of disagreement like that.

Data has been inconsistent.  Take last week for example.

At 9:00 AM Tuesday morning, the Case-Shiller Index showed home prices rising nationwide.  Because many analysts believe housing fueled the recession, strength in the sector is widely construed a positive for the economy.

Mortgage rates rose on the news.

But then, an hour later, the national consumer confidence report revealed a substantial deterioration in sentiment versus the month prior.  The data forced Wall Street to do an about-face.

Housing is important to the economy, but it can't affect growth like consumer spending can. When Americans are less confident about their future income, they tend to keep their wallets closed, retarding economic growth.

Holiday Shopping Season is getting underway and the last thing businesses want to see is a suddenly reserved American shopper.

This week, the volatility should continue. 

In addition to the release of key employment and housing data, the Federal Open Market Committee has a scheduled 2-day meeting.  The group's Wednesday afternoon adjournment will influence mortgage rates.

The Fed is widely expected to keep the Fed Funds Rate in its target range near 0.000 percent, but it won't be what the Fed does that will matter as much as what the Fed says.

If the FOMC's press release shows optimism for the economy, mortgage rates will rise in response.  Alternatively, if the Fed appears more dour, rates will fall. 

Either way, consider locking your rate before the Wednesday afternoon announcement.