Mortgage Rate Update

This Week In Your Wallet: Mortgages, Marriage and Moolah, Oh My by Jean Chatzky

If you’ve been reading the same papers I have this week, then you’ve likely noticed the headlines swirling about falling mortgage rates. The average rate on the 30-year fell to 4.12% according to Fannie Mae, the average on the 15-year to 3.25%. This is one-third of a point lower than the highs that hit late last summer, but also about a point higher than the lows of recent years.

What’s driving rates down? Not dismal economic news. Rates tend to fall when data is released showing that the economy is slowing – and rise when we get reports that it’s improving.  We got the latter this week. Consumer confidence is up according to The Conference Board. Durable goods orders are rising.  And, according to a recent Gallup Survey, the amount consumers are spending on a daily basis – at $98 -- is at a six-year high and $10 over the April average.

The take from Bankrate.com: The markets don’t seem to believe the economy is headed for a roar -- more like a “slow growth, low inflation” period of the sort that supports bond prices (yields on 10-year Treasuries are akin to 30-year-mortgage rates). There’s also some sense that the housing market, while improving, has a decent amount of ground to make up before it’s fully recovered.

So what does this mean for you going forward? I was asked that question this week on Twitter: @natehyde wrote: Do you foresee the rates for the 30 yr getting into the 3’s?

I don’t, and neither do the forecasters at HSH.com. According to their most recent weekly post: “Will mortgage rates continue their slow downward drift next week? Probably. Are they confounding expectations, including ours? Yes….For our part, we think the [upcoming] news will be pretty solid, and both stocks and interest rates may firm a little bit.”

If you’re shopping for a loan, take a look at hybrid products that can lower your rate, while not dramatically increasing the amount of risk you’re taking. Last week, The Wall Street Journal wrote about a 15/15 adjustable rate loan from PenFed Credit Union. Like other ARMs (5/1s, 7/1s, etc.), it’s fixed for the first part of the term, then adjusts a single time. Right now, the starting interest rate is 3.65%. If you think (or even know) that you’ll be out of your house by then, that can be a smart move. Likewise, Bankrate Senior Financial Analyst Greg McBride has seen 5/5/20 adjustables, which are fixed for the first five years, then adjust and hold for another five, then adjust once again. “These are products that warrant consideration for people who are not using them as a crutch of affordability,” he says, noting that using an adjustable to buy more home than you could really afford was a big problem when the housing market collapsed. “They’re for people who have plenty of cash flow to make the payments, but are disciplined enough to put the savings into other investments.” 

How long can these rates last?

New numbers just released from NWMLS: data for today's buyers and sellers

Punxsutawney Phil’s prediction of an early spring is showing up in the latest housing activity report from the Northwest Multiple Listing Service. Its statistics for January showed a 14.4 percent year-over-year increase in pending sales and a 23.6 percent jump in closed sales amid a 31.3 percent decline in inventory.

I listed this beautiful custom home in Olympia on 5 acres for $379,000.  On day 1, I secured a more than asking price offer and have a list of buyers eager to be notified if the current transaction fails.  This is a prime example: supply is low, demand is high.  Call me today for these results.

The MLS reported 4,289 closed sales during January, surpassing the year ago total by 820 transactions. Last month’s completed sales of single family homes and condominiums had a median selling price of $239,300. That’s up 11.3 percent from the year-ago figure of $214,990.

Supply has dwindled to less than two months in some counties close to job centers, spurring bidding wars. Some buyers are even resorting to writing “love letters” to win over sellers in these competitive situations. Brokers also report an increasing number of buyers have little or no interest in making offers on short sales.

As a Broker, the ratio between active buyers and available inventory is so out of balance, even homes that were hard to sell for various reasons are being snapped up so those sellers were wise to list.   So what does this mean exactly?  Now is a good time for sellers to list. Sellers who are considering a spring or summer listing may want to consider listing now as demand is outweighing supply.  This has given well priced sellers the advantage with the benefit of quick sales and multiple offers.

With multiple offers on the rise, buyers are seeking an edge as they vie for a desirable home. Brokers are reporting an increase in the use of heartfelt letters from would-be owners who want to distinguish themselves and forge an emotional bond with the sellers.  Buyers should not forget the human element of appealing to a seller in this multiple offer market.  You just never know who is on the other side of a transaction and what might be important to them.

Brokers in the 21 counties served by Northwest MLS added 7,096 new listings to inventory during January. That total was just slightly more than the number of pending sales (7,016) that members reported last month and brought the total number of active listings at month end to 18,008.

Often we don’t see momentum to really begin building until mid February to the first part of March. This year, I think due to the already low inventory and the continued low interest rates, the market feels like it started mid January.

Despite imbalance between supply and demand, more and more buyers are opting not to purchase short sale homes because of the uncertainty involved. It’s not uncommon for a lender to choose at the last minute to foreclose on a property instead of approving a short sale. When this happens it leaves the buyer high and dry with 2-to-4 months of time invested, only to have to start the process all over again.  That can leave them at a disadvantage considering the current pace of sales.

Sixty percent of homes close to job centers are selling within the first 30 days of being listed – twice the average rate, according to figures compiled by MLS, therefore extremely favorable market conditions have brought a surge of local home buyers into the market. Historically low interest rates and a shortage of inventory are creating an environment for multiple offer situations.

Even though buyers are flocking to newly listed homes, sellers must be smart about pricing. In my area, a home that comes on the market that is well priced for the area, style and condition is usually under contract within a few days.  Additionally, homes that have been on the market for more than 20 days are sometimes subject to price reductions. Today’s market defies basic economics for supply and demand.  Interesting factors include sellers who are still holding back for myriad reasons. Some do not have the confidence or equity to put their home in front of buyers, and that is creating even more pent-up demand.

Yet another positive indicator of the state’s housing market recovery came from the National Association of Home Builders and its NAHB/First American Improving Markets Index (IMI). Six markets in Washington appeared on the list, the largest number since that gauge was created in September 2011. The IMI is based on six consecutive months of improvement in housing permits, employment and house prices.

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership includes more than 21,000 real estate brokers. The organization, based in Kirkland, Wash., currently serves 21 counties in Washington state.

8 Signs That Housing is on the Mend

1.    Housing prices are on the rise across the country.

2.    Foreclosures have slowed. Analysts suggest that as the supply of distressed homes slows, buyers will be forced into higher-price properties too.

3.    Inventories of for-sale homes on the market are decreasing. In fact, inventories of for-sale homes have dropped 24 percent from a year ago.

4.    Mortgage rates are at ultra record level lows, for those who can qualify.

5.    Housing starts rose 6.9 percent in June. Also, existing-home sales were up 4.5 percent higher in June compared to one year ago.

6.    Home building stocks are on the rise.

7.    For investors who are buying homes, rents are soaring, allowing them to cash in on their investments. Rental prices are at a 10-year high as median units rent for $710 a month.

8.    Home affordability is at record highs for the median income family, due to falling home values and super low mortgage rates. In fact, a recent study found that it is cheaper to buy a home than rent in basically every major city in the U.S. For those who buy, you can save the cost of renting by owning the home for five years or less.

Why Buy Now?

WHY BUY?

There are plenty of good reasons to buy your home. Here are just a few.

· You’ll own it. You’ll have a place to call your own, a place to raise your children and a chance to become a part of your community. You can pass your home down to your children and their children, creating security for generations to come.

· Your payments may be less. When you buy your home, your monthly payments are often less — and you own it in the end. Homeownership can also reduce the federal income taxes you pay because you can deduct your mortgage interest and property taxes on the tax returns you file each year. These tax savings partially reduce or offset the actual cost of owning your home.

· Your payments may never increase. If you choose a mortgage with a fixed interest rate, you’ll make the same mortgage payment each month for the entire 30 years of the loan.

· You’ll build a big nest egg. Owning a home is the single greatest source of financial security and independence for the majority of people who have taken this step. You can experience that sense of security, too.

WHY BUY NOW?

Current market factors make NOW a great time to buy a home.

· Low interest rates. Mortgage rates have returned to near-record lows, reducing monthly payments substantially.

· Competitive prices. Prices are attractive in today’s slower market and will rise again when the housing cycle turns up.

· An improving mortgage market. Lenders are making loans to borrowers with good credit, and Congress and the White House are pursuing ways to make loans more available to first-time buyers and buyers in high-cost markets.

· Great selection. It’s easy to find the home you are looking for at a price you can afford.

· Energy efficiency. Today’s new homes are designed to save you money on your monthly utility bills, and increasingly incorporate new green technologies. See the RE/MAX Parkside Green Home Guide for more information on green homes.

Pacific Northwest renting vs. buying

So what happens if rates jump:  Here are some raw statistics to contend with.  Let’s say a person is committed to paying at most $1,000 per month in principal and interest to be comfortably within this person’s budget.  A mortgage calculator will spit out that at a 3.9 percent rate (last week’s rate), this homebuyer will be able to take out $212,000 in mortgage amount.  At 4.5 percent (near future rate), the figure drops to $198,000, or the equivalent to a drop of 7 percent in purchasing power.  The homebuyer therefore has to shoot for lower price points.

Some more reading on rates rising