The average rate for a 30-year fixed mortgage climbed to 3.98 percent, a 14-month high, from 3.91 percent last week, McLean, Virginia-based Freddie Mac (FMCC) said in a statement. The average 15-year rate increased to 3.1 percent from 3.03 percent.

Borrowing costs have jumped in past month, pushing buyers to lock in deals before rates climb even further. Home-loan applications increased for the first time in five weeks, the Mortgage Bankers Association said yesterday. The group’s refinancing index gained 5 percent in the period ended June 7, while the purchase gauge advanced 4.7 percent.

“Mortgage applications for home purchases have built a bottom and are grinding higher,” John Herrmann, director of U.S. rate strategy at Mitsubishi UFJ Securities USA Inc. in New York, said yesterday in a note to clients. “Sales to investors and all-cash deals have accounted for a significant portion of home sales over the past two years. Going forward, the true recovery in housing needs to be led by households purchasing homes on margin.”

At the current 30-year average, monthly payments for a $300,000 loan would be about $1,429, up from $1,322 in early May, when borrowing costs hovered near record lows.
Housing Expectations

Rising demand for a tight supply of listings is fueling price gains. U.S. home prices in April jumped 12.1 percent from a year earlier, the most since February 2006, according to CoreLogic Inc., an Irvine, California-based data provider.

While increasing rates may damp home sales temporarily, “we do not think it will derail the recovery,” Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York, wrote yesterday in a note to clients. “A powerful counter to rising rates is the improvement in expectations about the housing market, as well as low inventory.”

Mortgage rates have been following a surge in 10-year Treasury yields, which touched an almost 14-month high on June 11 amid concern that the central bank may slow purchases of U.S. government debt as the economy improves.

The record rate for a 30-year loan is 3.31 percent, reached in November, according to Freddie Mac. The 15-year average fell to a record-low 2.56 percent last month.

SOURCE: Bloomberg

Rising home prices likely are encouraging more home sellers to test out the market. The inventory crunch may be showing signs of easing with listings rising 5.8 percent in May. Still, the number of homes for sale is low by historical standards. Listings in May are still 10 percent below year-ago levels.

The places where the number of homes for sale rose the most were Atlanta (rising 3.4 percent in May), Miami (2.8 percent), and Tuscon, Ariz. (1.8 percent).

“Even with the increases, inventories in many markets remain tight, but any easing in the extreme shortages of the past year could ultimately cool the pace at which home prices have been rising,” The Wall Street Journal reports.

Meanwhile, median asking prices rose 4.8 percent nationally over year-ago levels, according to the report. Sacramento posted the highest increase in asking prices (rising 42.3 percent from April 2012) and Oakland (a 38 percent increase).

SOURCE: Realtor Daily News

The National Association of Realtors said May 30 that its seasonally adjusted index for pending home sales rose 0.3 percent to 106. That’s the highest since April 2010, when a homebuyer tax credit inflated sales.

Signed contracts have jumped 10.3 percent in the past 12 months. There is generally a one- to two-month lag between a signed contract and a completed sale.

Home sales and prices began to recover last year and have been buoyed by steady job gains and low mortgage rates.

Sales of previously occupied homes rose in April to a seasonally adjusted annual rate of 4.97 million, a 3 ½-year high. Sales of newly homes also rose in April, to nearly a five-year high.

Still, the supply of homes on the market remains low and that could keep sales from accelerating later this year. The number of available homes for sale rose in April, the Realtors’ group said last week, but was still down 14 percent from a year earlier.

Fewer homes for sale may be holding back sales in tight markets out West, such as Las Vegas and Phoenix. In those cities, many homeowners still owe more on their mortgages than their homes are worth.

The trend showed up in the April pending home sales report. Signed contracts to buy homes soared 11.5 percent last month in the Northeast and 3.2 percent in the Midwest. But they fell 7.6 percent in the West and 1.1 percent in the South.

Still, the tighter supply is also pushing up home prices. That could encourage more people to put their houses on the market. The Standard & Poor’s/Case Shiller 20-city home price index this week said prices rose in March nearly 11 percent over the past 12 months. That’s the fastest pace in seven years.

And a limited supply of homes has made builders more willing to ramp up construction. Applications for building permits rose in April to the highest level in nearly five years.

Mortgage rates, meanwhile, jumped this week to their highest levels in a year. That means potential homebuyers are facing higher costs.

Still rates remain relatively low by historical standards. The average rate for a 30-year mortgage rose to 3.81 percent, up from 3.59 percent last week, according to mortgage buyer Freddie Mac. The record low of 3.31 percent rate was reached in November.

SOURCE: Associated Press

This is a short video created by Wells Fargo that explains the basics elements as it relates to a home mortgage. Worth watching, especially if you have never financed a home before.

Refis have been a cash cow for banks. In a note out today, Moody’s (MCO) analyst Megan Snyder says fewer refis means banks will see less revenue, both because volume is down and because margins are shrinking. How banks respond to rising rates changes the game for borrowers.

For a while, many banks will absorb some of the impact of rising rates by reducing how much profit they make on each loan. Their margins on mortgages reached record highs in 2012, so they have room to trim them to keep business coming in and still be making money. “In the short term, everybody will be playing a game of chicken to see if rates go back down,” says FBR Capital Markets analyst Paul Miller.

If rates don’t go down soon, banks may start laying off staff from the huge operations they built up to process the refis. Compass Point’s Kevin Barker says this will be especially true for smaller lenders, who will have to choose if they focus their staff and capital on other types of lending, such as business loans or credit cards.

That same quest to replace refi revenue could lead banks to be more lenient in approving new mortgages for buying homes. “In a lower-volume environment, given the capacity out there, you will see some people loosening up credit,” Miller predicts. He says banks won’t lower standards as much as they did in the housing bubble. The average FICO scores for new loans could drop from about 750 to as low as 710, he says. Making mortgages somewhat easier to get would help the housing market rebound—which could help the economy and further push up rates.

SOURCE: Bloomberg

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The bursting of last decade’s housing bubble feels like ancient history here, where first-time home buyers are competing with investors to get into single-family homes with prices approaching $1 million.

“It’s everyone from a kid out of law school to an investor from China, walking around with thousands to spend,” said Kameron Eliassian, a Los Angeles real estate agent. “I don’t know where it’s coming from, and I don’t care. Just show me proof that it’s there, and we’re good.”

After saving money for years, waiting for the residential real estate market to hit bottom, buyers all over the country appear eager to get back in, lured by low interest rates and the prospect of a good deal.

But with the number of homes for sale at historically low levels and large investors purchasing thousands of properties, buyers are facing a radically changed market and prices are quickly rising.

The percentage of homes bought with cash has shot up in many markets across the nation. Nearly a third of all homes purchased in Los Angeles during the first quarter of this year went for all cash, compared with just 7 percent in 2007. In Miami, 65 percent of homes sold were for cash deals, compared with 16 percent six years ago.

People are realizing we’ve probably hit bottom, but the kinds of spikes we’re seeing in places like California seems like history is repeating itself

The prices on all-cash deals are also rising significantly. In Los Angeles, the median price on an all-cash home this year is about $351,000, compared with $230,000 in 2009. Over the same period, the median price over all increased to $410,000, up $85,000. In fact, last month, home prices in Southern California hit their highest level in the last five years.

All-cash buyers, typically investors eager to renovate and quickly resell or rent out homes, are making it more difficult for first-time buyers, who typically rely on mortgage loans that can take weeks or months to materialize. More California homes have been flipped in the last year than in any year since 2005.

And while Los Angeles may be a center of the frenzy, it is not an anomaly. Buyers in Boston are offering $100,000 more than the asking price or placing offers on homes they have spent only minutes in. In San Francisco, Miami and Phoenix, sellers are looking at dozens of offers within days of putting their home on the market, often accompanied by letters from would-be buyers professing their love for the property. New York City has seen similar drops in inventory, and prices have been rising steadily since 2009.

Shortly after Andres Alvarez, 36, got married last fall, he began to look for a home with his wife, figuring that their steady jobs, savings and good credit would make them the perfect buyers in Los Angeles. They were ready to spend $700,000. Their optimism deflated quickly.

“We thought we were the cream of the crop, but anything that was in our price range and move-in ready, there was this insane competition,” Mr. Alvarez said. They put in nearly a dozen bids, often losing to cash buyers, before finding a two-bedroom home for $650,000. “It might be a great time to buy, but it’s a horrible time to be a buyer,” he said.

A year ago, people didn’t want a deal, they wanted a steal – Sellers were listing homes for less than what they originally paid for them and offering all these concessions.

Now, the only concessions are coming from the buyers.

Dick and Susan Yost can vouch for that. They wanted to downsize while leaving their home in Cambridge, Mass., to their son and his family. “We bid on eight places before we finally got one,” Mr. Yost said. “The worst we bid was $85,000 over the asking price, and we didn’t get it.”

Even unappealing homes, he said, had “people all over them.”

Still, there are plenty of skeptics wondering how long the sharp price increases can last.

“People are realizing we’ve probably hit bottom, but the kinds of spikes we’re seeing in places like California seems like history is repeating itself,” said Daren Blomquist of RealtyTrac, which monitors residential sales. “That’s not sustainable for the long term, at least not for the regular home buyer, so I think there are some warning flags there.”

For agents who spent the last several years scrounging for business, the change is welcome. When Mr. Eliassian listed a three-bedroom home in the Hollywood Hills for $699,000 this year, he worried that the current renters would make it difficult to schedule prospective buyers. But with just two open houses — one meant only for other agents — nearly 300 people came through.

“I had to turn the phone off to avoid people asking to see the place,” Mr. Eliassian said.

Within the week, he had six offers, and the home sold for $745,000. He said he had represented and sold homes to more cash buyers in the last year than at any other time in his career.

Lewis Legon, a developer in Salem, Mass., jumped into the Boston market after he saw how many people were showing up at open houses. “It was like Times Square,” he said of one open house, at a property listed for $1.5 million. He beat out two dozen other bidders by offering $1.8 million in cash, not the first time he had made an all-cash offer.

“The first time I was ready to have a heart attack,” he said of all-cash buy. “But it makes you a more attractive buyer and helps you stand out.”

He also waived the inspection clause, an increasingly common practice. While offers have typically included appraisal clauses, allowing buyers to back out if the home was valued below what they were willing to pay, offers today are more likely to include escalation clauses, saying buyers will pay an additional amount over the highest bid.

“Buyers are taking a lot more risks than they ever would before,” said Dana DeSimone, a Boston real estate agent who called the current market an “insane asylum.” “I don’t know that I’ve ever heard of waiving the inspection contingency on a 150-year-old brownstone until now.”

Now, agents say their biggest challenge is potential sellers who are wary of putting their home on the market because they fear they cannot find a place to buy.

Jeff and Lorena Leininger considered moving from their suburban Los Angeles home over the last several years, but they feared they would not get as much as they paid for it. But this year, with their youngest child getting ready for kindergarten, they decided it was time. Three days after showing the home, they had nine offers.

“It felt as crazy as it was back when we bought 10 years ago,” Mr. Leininger said. “But it was much worse on the other side. We would show up to an open house, and it was already sold. The clear message was: be ready to move fast or just get left out.”

Even in Florida, where the market was once swamped with foreclosures, there are signs of the latest boom, with cash purchases fueled in part by international investors and retirees awash in cash after selling their homes elsewhere.

Don Faught, a manager with Alain Pinel Realtors near San Francisco, said the current market is turning buyers to desperation, particularly because the turnaround has come so quickly.

“A year ago, people didn’t want a deal, they wanted a steal,” he said. “Sellers were listing homes for less than what they originally paid for them and offering all these concessions. Now, the only concessions are coming from the buyers.”

His office has begun to track the number of offers clients make before landing a property. The current record: 27 offers, nearly all at or above asking price.

SOURCE: NYTimes

A study by the Pew Charitable Trust shows that most of those who benefit from the deduction are in states on the East and West Coasts, where most of the nation’s affluent homeowners are.

(It must be said that Pew is supplying and analyzing data only so that those considering a change to the tax code can make an informed choice.)

According to Pew, one of the largest of the tax code’s expenditures is the deduction for home-mortgage interest. Tax filers who own a home and itemize their deductions are allowed to subtract from their income interest paid on mortgage debt.

In tax year 2011, filers deducted about $360 billion, “resulting in roughly $72 billion in forgone federal income tax revenue,” the Pew study says.

Only two federal tax expenditures were larger that year, Pew says, “and in years past, this deduction has often ranked second behind the exclusion for employer-provided health insurance.”

According to Pew, fewer than half of all homeowners and about a quarter of tax filers claim the deduction, available only to homeowners who itemize deductions.

The benefit increases with the size of the mortgage.

I had assumed that the real estate downturn had an impact on the total amount of deductions during those years.

Pew’s study says total mortgage interest deducted by tax filers hit its peak in 2007, “resulting in $543 billion in deductions and roughly $85 billion in forgone revenue.”

From 2007 to 2010, the total deduction amount fell 28 percent, and the number of claims declined by 12 percent.

The middle of the country was the least affected.

The percentage of tax filers deducting mortgage interest in 2010 ranged from a high of nearly 37 percent in Maryland to a low of 15 percent in West Virginia and North Dakota.

The U.S. average was 25.5 percent. Pennsylvania was at 20 percent to 25 percent. New Jersey was 32 percent and higher. Delaware fell in between, 26 percent to 31.9 percent.

The average U.S. deduction was $2,713 – Pennsylvania fell around there. New Jersey and Delaware were in the $3,000-to-$3,999 bracket.

Virginia, Maryland, and California had the three highest average deductions – $4,000 to $4,999.

Claims were highest in metropolitan areas, especially in the Boston-to-Washington corridor, the report shows.

In Pennsylvania, the highest percentage of claims were in the Philadelphia, Allentown-Bethlehem-Easton, and York-Hanover metro areas – 29 percent and above. The same three areas had the high deduction amounts: $2,800.

New Jersey and Delaware were not broken down in the Pew study.

According to National Association of Realtors’ research, eliminating the mortgage deduction would cause a 15 percent decline in the value of homes nationwide.

1. Be preapproved: About three or four months before home buyers even shop for a home, they should review their credit reports to make sure they’re accurate and take short-term steps to improve their credit score, says Michael Corbett, author of Before You Buy! Corbett says buyers then should get a bank’s preapproval. While that won’t guarantee they’ll get the loan, it shows sellers that a lender has verified the buyer’s income and credit score to determine that she can afford payments on a mortgage for a certain amount.

2. Don’t lowball: Buyers may only get one chance to get the home they want in a competitive market. They may not get a second try to sweeten the deal later, so a lowball offer the first time around could cause them to lose out. Buyers should use sales prices of comparable properties in the neighborhood to submit their best offer the first time around.

3. Consider an escalator clause: These purchase contract clauses are becoming more popular again. This is when the buyer agrees to increase their offer if there’s a higher bid from another buyer.

4. Add earnest money: The extra deposit can show sellers how serious the buyer is. Some buyers may even double the amount that the seller requests to show their commitment in purchasing the home.

5. Keep contingencies to a minimum: Sellers prefer no contingencies, but buyers want to protect their interests too. “Offset a financing contingency with preapproval and a strong earnest money deposit,” Kiplinger’s Personal Finance reports. “If you have enough cash, temper an appraisal contingency by assuring sellers that if the appraisal comes in lower than the purchase price, you’ll pay the difference or split it with them (up to a certain amount).”

6. Write a letter: Personal love letters about the home addressed to the sellers are winning over some hearts lately. The letters tell the seller about the buyer (e.g. “We’re relocating from …”) and what drew the buyer to the home (e.g. “We especially love …”).

SOURCE: Realtor Daily News

After hitting a five-month low in early May, rates have made an abrupt turnaround

The average rate for a 30-year fixed rate mortgage for loans under $417,500 hit 3.9% for the week ended Friday, the Mortgage Bankers Association said Wednesday.

That’s the highest since May 2012, and up from 3.59% for the week ended May 3.

Mortgage rates are moving higher, but are still near all-time lows.

The latest increase spurred a 12% drop in refinance applications for the week, the largest single week drop in refinance applications this year, the MBA says.

The rise in rates has “been a very dramatic move,’ says Bob Walters, chief economist for Quicken Loans. “Mortgage rates have jumped more in the past week than they have in years.”

Rates had been trending higher all month on the strength of good economic reports. They really moved last week, Walters says, as markets reacted to mixed signals from the Federal Reserve that raised the possibility it might begin to taper its purchases of mortgage-backed securities and Treasury bonds sooner rather than later. Those purchases have helped keep interest rates low.

“That’s created a little panic wobble,” says Keith Gumbinger of mortgage tracker HSH.com.

Mortgage rates follow the yield on 10-year Treasury notes, which finished at 2.12% Wednesday, up from a low of 1.63% earlier this month.

Even if rates head higher from here, they won’t go very far, very fast, says Frank Nothaft, Freddie Mac’s chief economist.

“We’re seeing the first steps in a gradual uptick,” Nothaft says.

Freddie Mac reports its weekly survey data Thursday.

For the week ended May 23, it showed 30-year rates averaging 3.59%. Nothaft expects them to move above 4% sometime next year.

The Fed has said it will keep its monetary policy in place until unemployment hits 6.5%, assuming inflation is in check, With unemployment running at 7.5%, no big changes are likely, Nothaft says.

While higher rates have cooled refinance activity in recent weeks, they could spur some fence sitters, says Doug Lebda, Lending Tree’s CEO. Given the rise in home prices the past year, some lenders are also loosening guidelines so more people can refinance, Lebda says.

Some loan shoppers, in recent weeks, have also quickly adapted to rising rates by switching to 10-year-loans, which carry lower interest rates than the 30-year fixed rate loans, Walters says.

Nationwide, more than 45% of homeowners with a mortgage had interest rates above 5% as of December, shows data from market watcher CoreLogic. Many of those homeowners probably lack enough equity in their homes to qualify for a new loan.

Home buyers, meanwhile, are not likely to be put off by higher rates, which are still very low, says economist Christopher Thornberg of Beacon Economics. Instead, if rates keep drifting up, “you might spike the market for six months as people rush to buy,” he says.

Thornberg expects interest rates to settle between 4% and 5% next year.

SOURCE: USA Today