Declining First Time Home Buyers Slows Recovery

Bloomberg Personal Finance is reporting that Americans are being shut out of the housing recovery

because of rising prices and tougher credit standards. First-time buyers accounted for 26 percent of purchases in January, the lowest level recorded by the National Association of Realtors (NAR) since it began tracking the data in October 2008. The decline of these buyers threatens to slow the pace of the economic recovery.

Inventory Smaller

More moderately priced homes are usually the main inventory for first time home buyers, and that inventory has shrunk do to cash investors snapping them up for rentals. In December, 47 percent of U.S. purchases were paid for with cash, up from 27 percent a year earlier. In addition adding to the already shortened supply, thirty-nine percent of owners looking for better homes plan to keep their current house as a rental. Higher mortgage costs are also a burden for first timers. Rates for 30-year fixed loans climbed to 4.37 percent last week from a near-record low of 3.35 percent in early May.

Lender Issues

The FHA, the biggest source of financing for first-time buyers, has raised the cost of borrowing and tightened underwriting to cope with losses on mortgages it insured as the property bubble burst. The number of FHA borrowers purchasing their first homes declined by 38 percent last year. For buyers whom go with other lenders they are requiring higher FICO scores. More than 40 percent of borrowers in 2013 had FICO scores above 760, compared with about 25 percent in 2001. Because of these difficulties, new home owners aren't even applying for home loans.

Young People Home Ownership Down

The home ownership rate for people in their 20's and 30's fell to 42.2 percent in 2013, the lowest in 19 years of Census data. While purchases rose 8.2 percent for residences costing more than $250,000, they fell 10.7 percent for homes worth less. Leslie Appleton-Young, chief economist for the California Association of Realtors sees the decline as ‘a huge problem’. Another economic factor to add to the decline of first time home buyers is, housing prices are rising faster than incomes at this point. What’s a first time home owner to do? Focused strategy oriented planning is the best path for those interested in purchasing their first home. 

Retail Establishments Increasing Property Values

Does the arrival of retail establishments increase property prices within that same area? Of course chic, boutique- and bistro-filled neighborhoods have higher property values than less-vibrant areas. But what about large national retail stores? There is one particular company that has a proven track record of revitalizing neighborhoods and jump starting development:  Whole Foods Market. A Whole Foods Market will open its first store in Savannah on Aug. 13, more than a year ahead of schedule. Atlanta-based developers Knightswood and S.J. Collins Enterprises demolished Backus’ trademark pink buildings on Victory Dr. and several neighboring structures to construct the Victory Station shopping center. Whole Foods is the anchor to the center which will also have a PetSmart , and a handful of small retailers.

Increasing The Value of Property

Whole Foods. Across the country, the healthy food retailer, is widely credited with reinvigorating formally undesirable neighborhoods, creating demand for housing and bringing in customers to adjacent businesses. While most evidence is anecdotal, all accounts indicate that the arrival of a Whole Foods is a sure sign that a neighborhood is about to turn around, or increase the value of the already well established neighborhoods. This “seal of approval” quality is Whole Foods’ Midas touch, potential gentrifiers see it as something tangible that certifies a neighborhood as a quality buy. And not just residents; businesses too, look to Whole Foods as a disciplined pioneer that does its homework.  Its most basic criterion is reportedly 200,000 people, a good portion of them college educated, living within a 20-minute drive. Shortly after the announcement of the arrival of the food retailer, Chick-filet, and a Zaxbys constructed and opened their doors within ½ mile of Whole Foods. Perhaps they heard the food retailer was coming to town.

The Whole Foods Effect

Communities such as East Liberty in Pittsburgh, Logan Circle in Washington, DC and Uptown New Orleans all experienced development booms following the arrival of Whole Foods. The Austin, Texas-based food retailer has made a science of putting down roots in urban locations at what often seems to be just the right moment. The company is so good at the real-estate game that it has spawned a catchphrase, ‘the Whole Foods Effect’. A report in 2007 by a Portland-based firm showed that the presence of a specialty food retailer (i.e. not a typical grocer) increases home prices by anywhere from 6% to 29%. An exhaustive 2007 study by Johnson Reid quantified the effects that individual urban amenities have on home prices. Using hedonic modeling, it found that a specialty grocer will increase surrounding home prices by an average of 17.5 percent, more than bookstores, bike shops or gyms (with the caveat, of course, that this varies greatly depending on the situation — in the instances studied, the increases ranged widely from 6 to 29 percent).

Now Could Be The Time To Buy

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'The Whole Foods Effect' isn't caused by the store itself, it’s caused by the events it sets into motion. And one thing Whole Foods does is stay open later than a lot of the other shops around it, laying the groundwork for expanding the length of that neighborhood’s day. Greg Badishkanian, an analyst with Citigroup who tracks Whole Foods, said in a 2006 NPR story, "When Whole Foods opens up a store in a particular market, all of the real estate in the area gets a nice uplift. It could be a few percent to 10, 15, 20 percent in terms of the real estate value." So if you are an investor or looking to buy a new home, perhaps now is the time to look in Parkside, Ardsley Park/Chatham Crescent, or the Victory Heights area. It looks like the home prices in these neighborhoods are going to increase if ‘the Whole Foods effect’ theory holds up.

Search for properties in this area.

Timing The Market - Fact or Fiction

Buyer Tip

There is never a wrong time to buy the right home.  Trying to time the market at the right moment to purchase a home rarely works to your advantage. Real estate is a solid investment because of long term factors; equity buildup, value appreciation, and tax benefits. Finding a home that meets your criteria is a smart purchase in any market climate. Make a list of your criteria and make contact with a real estate agent even if you feel ‘now’ is not the right time. Stay in touch with your agent and keep an eye on the real estate listings in your area of interest, thus assuring that you will find the right investment at the right moment.

Selling Tip

Are you trying to figure out if ‘now’ is the right time to sell your home? Well the first step to that answer is; one recognize that the real estate market is different in every region; two never rely solely on one person’s advice or opinion. Here are a few decision points to consider:

• Research your market, what are homes selling for? (Home prices nationally climbed 8.3% in  December from the same period a year earlier)
• Acting sooner than later could be an advantage, buyer search activity generally peaks in March and April.
• Currently according to the Wall Street Journal prices are rising – good news for sellers.
• Interest rates on mortgages are still very low.

Supply of homes for sale is likely to increase over the next few months, creating more competition, say real-estate agents. Again, make sure to see what is occurring in your regional real estate market.

Finally The Wall Street Journal is upbeat for selling your home now: “Still, in many markets, sellers have more of an edge than they have had in years. One big reason: The number of existing homes on the market dropped to 1.74 million in January, down 25% from a year earlier and the lowest level since December 1999, according to the National Association of Realtors.”

News You Can Use

One of our favorite Mortgage Lenders, Michael Caputo, sent us the following information. Ever wonder what the big hype is over the Greek economy and why we should care about it? Read below.

I had an agent ask what all the talk was about Greece and why we care about it.


First, How Mortgage Rates Work

Rates come from the price of a mortgage-backed bond that's bought and sold on Wall Street, and that has its pricing set in the same way as a stock does -- supply and demand. When demand for bonds is high, in other words, prices rise.

Rising prices means lower rates on mortgage for buyers and refinancing households.

By contrast, though, when demand for mortgage bonds is low, bond prices fall. This leads to higher mortgage rates for everyone.

The relationship between mortgage bond demand and mortgage rates holds for most types of loans including the conforming, FHA, USDA and "high-cost" conventional varieties.

Because mortgage rates are based on the price of mortgage-backed bonds -- as a rate shopper -- one of the most important questions you can ask your lender is "What is the mortgage bond market doing today?".

It's your best insight into where mortgage rates might go next.

Mortgage Rates Sink On Economy, Greece

Since April, demand for mortgage bonds has been high; so high, in fact, that rates plunged to an all-time low, reaching sub-4 percent levels we never thought we'd see.

Mortgage rates have been low because investors need safe places to park their funds. Equity markets are unpredictable and global economies are on shaky ground, at best. And, when in doubt, investors move their money to the safest places they know.

Those places include the U.S. mortgage-backed bond market.

Mortgage rates have been down since April on weak, U.S. economic data and the likelihood of a Greece sovereign debt default. This is because the U.S. economy is a powerhouse and because a Greece default would send shockwaves throughout the Eurozone banking system.

In the U.S., as jobs data sank; economic output reduced; confidence dropped; and home prices idled this summer, demand for mortgage bonds picked up as investors fled stock markets, leading mortgage rates lower.

Greece's issues contributed, too. Markets were of unsure whether Eurozone leaders would offer a bona fide relief program to Greece, and as those doubts grew stronger, mortgage rates sank more.

But then an interesting thing happened.

Mortgage Rates Now "Single-Minded" On Greece

3 weeks ago, mortgage rates bottomed. It was the day before the October jobs report was released and it appeared unlikely that Greece would receive an aid package.

Since that date, however, the U.S. economy has shown signs of life.

The jobs market rebounded strongly, posting healthy gains

Home sales and homebuilder confidence rose nationwide

Retail sales and consumer spending outperformed expectations

To a recovering economy, these are all good signs. However, mortgage rates failed to rise to reflect that. Instead, markets remain captivated by what may -- or may not -- happen in Greece.

That mortgage rates are still low signals that concerns for Greece -- and the rest of the Eurozone -- have cast a long shadow on the mortgage bond markets. You can trace each day's mortgage rate movement to comments regarding Greece. The stock market is moving in kind.

Today's mortgage market has a one-track mind. As Greece goes, so goes mortgage rates

Rate Alert : Greece Aid Expected

Eurozone leaders are expected to announce an aid package for Greece. This is the news for which mortgage markets have been waiting since April 2011. If the program is deemed "good enough", stock markets will soar and bond markets will sink.

This will take rates higher.

There's too much risk in today's market. If you're shopping for a mortgage right now, do the safe thing -- get your mortgage rate locked.

That takes us to Thursday morning where the European Union reached a deal on the bank debt situation. Stocks will do very well today and mortgage rates will go up.

Real Estate News Update

Jobs Exceed Expectations

Most of the news this week was not good for mortgage rates. The economic data was generally a little stronger than expected, and investor concerns about Europe decreased. As a result, after reaching new lows early in the week, mortgage rates ended the week higher.

Against a consensus forecast of 60K, the economy added 103K jobs in September, and the data for July and August was revised higher by 99K. The Unemployment Rate remained at 9.1%, as expected. Average Hourly Earnings, a proxy for wage growth, increased 0.2% from August. The good news for the economy is that the Employment report surpassed expectations and makes a recession look less likely.

Maximum Number of Mortgages

One individual can mortgage up to eight homes now. Our limit was 4 if the subject property was an investment or second home. There is no limit on the number of mortgages an individual can have if the subject property is going to be the primary home for the borrower. Keep this in mind for any of your investor clients who have been holding at 4 properties because of the previous rule.

The All Important Credit Score

Credit scores are critical to getting approved and the interest rate a borrower can get. The concept of risk-based pricing makes it more important than ever for a borrower to make sure their credit score is as high as possible. We now offer the Credit Expert system to all of our clients as a part of the pre-approval process. Using this score illustrator helps us show the borrower how different actions will influence their score. Have you ever been unsure if you should pay off or pay down a credit card? Wonder no more as we can show you the impact to help you improve your score and lower your interest rate. If you would like a demonstration of this, just let me know.

A real estate news update from Michael Caputo at Starkey Mortgage. Contact Michael at mcaputo@starkeymtg.com.

This Month in Real Estate (US) : October 2010

The latest from Keller Williams Realty International... "This Month in Real Estate."

Money Magazine selects Savannah as one of the 25 Best Places to Retire

CNNmoney.com

Savannah, GAPopulation: 130,300
% over 50: 29%
Typical 3-bedroom home: $225,000
State income tax: 6.00%*

A stroll through the cobblestone streets in the historic downtown will take you past antebellum homes and 22 small public parks. Savannah's layout reflects the meticulous planning of founder James Oglethorpe in the early 18th century. Today, the refined city combines Old South charm, romance and history with New South energy and progressiveness.

The prestigious Savannah College of Art & Design keeps the city young and has fostered a lively art scene. Art galleries throughout the city showcase both local and national talent, and residents can enroll in a range of SCAD Community Education classes. The bustling downtown also offers a host of shopping boutiques and quality restaurants.

Other perks for retirees: Savannah has a property tax freeze, so the city assesses homes following a purchase, but does not increase the assessment until that property is sold. Memorial Health University and St. Joseph's Candler's hospitals provide top-notch healthcare.

View the original article here: http://money.cnn.com/galleries/2009/moneymag/0909/gallery.bpretire_top25.moneymag/8.html

Biggest Defaulters on Mortgages Are the Rich

No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.
The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves.
Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.
At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.
Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.
The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.
The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.
With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.
“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”
Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.
“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”
“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.
The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.
In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.
The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.
But this is still Silicon Valley, where failure can always be considered a prelude to success.
In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.
His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.
“I’m going to be downsizing,” he said.
The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”



By DAVID STEITFELD
Published: July 8, 2010
New York Times

"Bull Street in Savannah Designated One of 10 Great Streets in America"

October 2, 2007SAVANNAH, GA — The American Planning Association (APA) announced today that Bull Street in Savannah, Georgia, has been designated one of 10 Great Streets for 2007 through APA's Great Places in America program. APA Great Places exemplify exceptional character and highlight the role planners and planning play in creating communities of lasting value.

APA has singled out Bull Street as one of this year's 10 Great Streets in America for the historic architecture and craftsmanship, diversity of uses, and integration of a variety of transportation alternatives — as well as the commitment of Savannah to preserve the street's legacy.

"We're honored that the American Planning Association has recognized Bull Street," said Mayor Otis Johnson. "Savannah is preparing to celebrate its 275th anniversary, and Bull Street exemplifies the rich history of our magnificent city," he said.

APA Great Places offer better choices for where and how people work and live. They are enjoyable, safe, and desirable. They are places where people want to be — not only to visit, but to live and work there everyday. America's truly great neighborhoods are defined by many unique criteria, including architectural features, accessibility, functionality, and community involvement. Through Great Places in America APA recognizes the unique and authentic attributes of essential building blocks of great communities — streets, neighborhoods, and public spaces.

"We're excited to select Bull Street as one of this year's Great Streets," said APA Executive Director Paul Farmer, FAICP. "Bull Street retains its 19th century grace and charm as it meets the challenges and needs of today's users. That helps make Bull Street unique and worthy of this recognition," he said.

The portion of Bull Street nominated for this honor extends from City Hall to Forsyth Park. Most distinctive are the five public squares located along the street — two of which were included in the original plan for Savannah created by General James Edward Oglethorpe. In his unusual orthogonal plan, streets and building lots are arranged around a central open space. The repetitive street grid connects one neighborhood to another and one public square to the next.

The squares are adorned with monuments commemorating citizens and events that have contributed to Savannah's history. Bull Street's Chippewa Square, for instance, was laid out in 1815 and named for a battle in the War of 1812. The square, featured in the movie "Forrest Gump," hosts a bronze and marble monument to General Oglethorpe who founded Savannah and the colony of Georgia.

Chippewa Square, like the rest of Bull Street, features a range of architectural styles, from the classical First Baptist Church to the Greek Revival Moses Eastman house designed by Charles Cluskey. Other architectural styles found along Bull Street include examples of Gothic, Italianate, and Second Empire dispersed among early 20th century buildings. Such diversity gives the feeling that the street has evolved over time.

Zoned for mixed use, Bull Street is home to churches, government buildings, residences, offices, shops, and cafes. Granite curbs, brick sidewalks, benches, and mature trees line the street and further enhance its character to make it one of the best walking streets in town. A nearby parking garage offers users a free shuttle into the downtown core; however, many choose to walk along Bull Street to enjoy its ambience.

As Savannah looks to its future, the city has put in place height and design standards to help ensure that new infill development along Bull Street is compatible with existing buildings. As part of the Downtown Master Plan process, these standards are undergoing further refinement. Underground parking and environmentally sound practices, such as green roofs, will be encouraged.

The nine other APA Great Streets are Canyon Road, Santa Fe, New Mexico; Delmar Loop, University City and St. Louis, Missouri; Main Street, Northampton, Massachusetts; Monument Avenue, Richmond, Virgina; North Michigan Avenue, Chicago, Illinois; Ocean Drive, Miami Beach, Florida; 125th Street Harlem, New York City; South Temple Street, Salt Lake City, Utah; and St. Charles Avenue, New Orleans, Louisiana.
(From the American Planning Association)

Loan modification or assistance

More Help for Homeowners in the Future.
Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage. According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster. While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices. The Economic Stimulus Plan is huge, and impacts a number of industries. I’ve highlighted some of the major provisions that may impact you now and in the future.
Copied from Brett Flanders Countrywide Mortgage

Tax Credit for Homebuyers

First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Copied from Brett Flanders Countrywide Mortgage

Stimulus Plan Finalized

(information from Countrywide lender Michael Caputo)
Government announcements dominated the financial news this week. Updates on two major programs both were favorable for mortgage markets, and mortgage rates fell modestly during the week.
The most highly anticipated news concerned Tuesday's speech from Treasury Secretary Geithner on the financial institution assistance plan. This "Financial Stability Plan" involves multiple programs to remove bad assets from banks' books and to support new lending. It also contains funds to help prevent foreclosures. Investors were sorely disappointed by the lack of details about how the plans would work, however, and they responded to the uncertainty by purchasing relatively safer assets. The stock market plunged, while Treasury and mortgage-backed security markets rallied, pushing rates lower. Geithner suggested that more information about a plan to purchase troubled assets and a comprehensive housing program will be released in the next few weeks.
In the middle of the week, Countrywide/Bank of America made a material change to our jumbo pricing. With 30 yr fixed jumbo rates up to $1,000,000 in the mid 5% range, make sure you keep your clients up to date on the exciting changes to our pricing structure.
Later in the week, the House and the Senate agreed on a compromise $789 billion fiscal stimulus plan, which is expected to pass within days. The Obama administration estimates that the plan will create 3.5 million jobs. Both the House and the Senate had passed versions which were larger than the final compromise plan, and the reduction in scope helped mortgage markets. A smaller plan means that the government will have to issue less debt. Unfortunately, one of the spending cuts in the final plan was a provision for a $15,000 homebuyer tax credit, which came with an estimated price tag of $35 billion. Instead, the government will leave in place an $8,000 tax credit, applicable to only first time homebuyers. The primary change to the tax credit is that it will no longer need to be repaid. The estimated cost of this $8,000 tax break is less than $3 billion. There are several provisions in the overall stimulus package that will be beneficial and help stimulate demand for housing.
Chief among these is the $8,000 home buyer tax credit for new home buyers. While we are disappointed and would have preferred a more enhanced tax credit like the Senate version, the conferees did retain some key elements from the Senate and made other modifications that are beneficial to home buyers and home builders. For qualified home purchases in 2009, the legislation:
Stipulates that the $8,000 tax credit does not have to be repaid, unlike the tax credit passed last summer;
Keeps the tax credit refundable, or claimable regardless of tax liability;
Extends the sunset date from July 1, 2009 until Dec. 1, 2009 so that consumers can utilize it during the critical summer and fall buying months;
Allows tax credit home buyers to participate in the mortgage revenue bond program; and
Permits state housing finance agencies to help buyers at closing by advancing the credit amount as a loan using tax-exempt bond proceeds.www.federalhousingtaxcredit.com is being updated to reflect the new changes. By Tuesday, you should be able to direct your clients to the site for all the tax credit information. The FAQ section is very comprehensive and should be able to answer most of you buyer's questions.
On Wednesday, the President will outline his plan to help slow the wave of foreclosures. With 10,000 foreclosures a day, the administration is set to pledge up to $50 billion to help more homeowners avoid foreclosure. The major money center banks all announced plans to stop foreclosing on owner-occupied units through March 6th until the President's new plan can be rolled out.

Why are mortgage rates going up as oil prices and the economy are going down.

This is a note my good friend and excellent lender over at Countrywide sent ot me today. Read it over.
The activity in Mortgage-Backed Securities (MBS) market - and other financial markets - has been very unusual this month. The Fannie Mae Required Net Yield has already made two round trips from about 5.70% to 6.60% over the past few weeks, displaying a level of volatility rarely seen. Under normal market conditions, the vast majority of the significant rate movements are the result of fresh economic news. This month, however, it has been common to see large rate movements unconnected to any news announcements, for reasons discussed below. One reason is that the credit crisis has forced many investment funds and financial institutions to reduce their leverage and raise capital. In many cases, these big holders of MBS are selling assets across their portfolios.This explains why MBS, stock, oil, and other markets have frequently all been falling on the same days. The fundamental economic data clearly supports lower mortgage rates. Global economies are slowing, oil prices are down, and expectations for future inflation are moving lower. As long as these investment funds are forced to sell assets, however, there will continue to be upward pressure on mortgage rates. How long it will last is one of the biggest questions facing investors today.

Rates moving higher this week has frustrated some buyers with all the talk about the Fed cutting rates. The Fed has control over short-term rates, which they are expected to cut by .50% today at 2:15pm. It is very common to see mortgage rates rise when the Fed cuts short-term rates. A second factor is that many investors are seeking to reduce the level of risk in their portfolios. They are buying Treasuries, mostly shorter-term,which are considered the safest and most liquid investment. These investors are generally not turning to MBS, and MBS prices have performed worse than Treasuries this month, meaning that the spread between mortgage rates and Treasury rates grew wider. The question is not whether investors will get their money back, but rather when they will get it back. MBS yield more than comparable Treasuries because MBS have prepayment risk and Treasuries do not.

The recent volatility and uncertainty in financial markets makes it more difficult to evaluate the prepayment risk, so investors are demanding higher yields and thus mortgage rates have gone higher.

Fannie and Freddie in the Spotlight

My friend over at Countrywid mortgage Mike Ca[puto sent this to me today and I wanted to share it.
While there have been concerns for months about the size of losses at Fannie Mae and Freddie Mac due to the credit crisis, the troubles at the two firms increased significantly during the week. Monday, a report from an investment bank suggested that the two firms would have to raise enormous amounts of capital to comply with revised accounting rules. Thursday, Former Fed member Poole claimed that the two firms are insolvent under standard accounting rules and warned that a government bailout might be needed in the future. Friday morning, there was speculation that the government was considering a takeover of the two firms.
The response from government officials was swift. The director of OFHEO, Fannie and Freddie's regulator, reported that they both remained "well capitalized" based on their charters. On Thursday, Fed Chief Bernanke and Treasury Secretary Paulson attempted to reassure investors that the financial system was sound. Since Fannie and Freddie are government-sponsored enterprises, and together account for about 70% of mortgage originations and hold $5.3 trillion in home-loan debt, most investors believe that the government would step in to prevent the collapse of the firms. Friday, Treasury Secretary Paulson stated that he sees no bailout on the horizon for Fannie and Freddie and that the government is working to support them to carry out their "important mission" in their "current form".
Bottom line, despite the negative headlines, comments from OFHEO, the Fed, and the Treasury eased investor concerns. While the stock prices of Fannie and Freddie plunged during the week, investors apparently were comfortable that the firms' guarantees of the mortgage loans were not at risk, and mortgage rates ended the week moderately higher.
Next week should be interesting if nothing else. As a reminder, FHA risk-based pricing takes effect on Monday.

A recent survey and a rate increase could mean more competition for homes

Recent indication is that first time home buyers are getting tired of sitting on the sidelines. According to a recent online poll taken by the National Apartment Association, 17 percent of renters plan to make the jump to home ownership in the next year; 41 percent of the 2,041 respondents planned to be home owners within two years. Only 31 percent planned to still be paying rent five years from now.
Another factor that could very soon contribute to an increase in home buying could be rising mortgage costs. Fixed-rate mortgage rates rose to 6.32 percent, the highest it has been since October. After months of aggressively dropping interest rates, many lenders are worried that the Fed will be forced to raise rates back up. As interest rates rise, so do mortgage rates. According to a press release on freddiemac.com, Frank Nothaft, Freddie Mac vice president and chief economist said that, "Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman [Ben] Bernanke and Vice Chair [Donald] Kohn, expressed concern over a threat of inflation." We may very well be seeing the beginning of the end of the super-low mortgage and potential buyers may realize that with rising rates, now may be the time to jump in. Nothaft added, "Moreover, pending home sales for April unexpectedly rose by 6.3% and mortgage applications for home purchases ... were also up last week."