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 to Ensure Healthy Price Gains

Prices are increasing quickly, though that may not always be the most healthy development for the economy. Also, banks may soon loosen overly strict requirements, but a choke point remains in new-home construction.

The housing recovery is surpassing most expectations. Rising demand and many years of sluggish new-home construction have forced home prices to rise at a near double-digit pace in many parts of the country. The latest surveys from the National Association of REALTORS®, which looked at foot traffic at open houses and inquiries from potential sellers to real estate agents, continued to point toward too many buyers chasing too few sellers. Home prices should continue to rise this year and likely next year as well.

Fast-rising home values are clearly good for home owners, but price increases that are far in excess of income growth are not good for buyers and not a healthy development for the economy. However, it’s important to keep in mind that demand is moving ahead in spite of the stringent lending standards still in place. Fully one-third of buyers are using cash.

Consider what demand would look like if underwriting restrictions were dialed back to a more reasonable level. That’s finally a possibility for two reasons: Banks are sitting on piles of cash, and the quality of recently underwritten mortgages has been high. These conditions could persuade banks to start easing overly strict requirements. The additional demand in a more “normal” lending environment potentially would mean even faster price growth. The only way to tame excessive price jumps is for more inventory to reach the market. Investors could help here by selling properties ahead of their intended schedule to take advantage of rising prices.

The choke point today is from the slow recovery in new-home construction. Housing starts in March finally crossed the 1 million mark for the first time in five years. But 1.5 million new housing units are needed annually to keep home-price gains at a healthy, long-term level of around 3 percent to 5 percent a year. That balance seems unlikely this year as we will continue to see demand outstrip supply, fueling exorbitant price increases in some places.

PER realtor.og MAY 2013 | BY LAWRENCE YUN

Survey Reveals Rising Prices, Strong Demand

The housing industry is staging a recovery with increasing sales and stabilizing prices, according to a national survey of RE/MAX agents. Four out of five agents believe U.S. home prices won’t decline further. In fact, nearly 70% predict prices will go up, led by a strong demand for homes in the low to middle price ranges.


"To active real estate agents, this market is definitely heating up," said RE/MAX CEO Margaret Kelly. "They are witnessing a recovery across the country fueled by home buyers and sellers taking advantage of a significant market opportunity."

Agent opinions are documented in the quarterly RE/MAX Market Insights, an online survey of 1,022 residential experts. The survey builds brand visibility for RE/MAX agents, and is typically picked up by more than 300 news outlets. Collectively, RE/MAX agents sell more real estate than any other real estate network in the U.S.

Download the RE/MAX Market Insights survey infographic.

Key findings include:

• Price rebound: 68% say prices will be higher by the end of 2012.
• Today’s prices: 29% below the peak reached during the housing bubble.
• Demand for lower-priced properties: 80% of agents say it’s good or very good.
• Demand for homes in the middle-price ranges: 71% rate it as fair to good.
• Demand for high-priced homes: 58% call it poor to fair.

A snapshot of today’s homebuyers served by RE/MAX agents:

• Roughly one third are first-time buyers. Another third are homeowners looking to sell so they can move up or downsize. The remainder are mostly investors, who believe the market has hit bottom.
• One in five buyers pays cash, receiving an average discount of 15%.

The most significant challenges facing first-time homebuyers are having an acceptable credit score, posting a down payment, and facing a shortage of homes for sale. Repeat buyers have the added burden of selling their current home. They, too, are facing a scarcity of homes to purchase in the lower and middle price ranges.

Nearly half of the agents say lower priced homes in their markets are selling for slightly less than the asking price, while 17% say buyers are paying full price and 11% say buyers are paying slightly more than the asking price.

For homes in the middle-price ranges, 49% report sale prices are slightly less than the asking price, while 8% say full-price is being paid. For the high-priced homes, 43% report that sale prices are moderately less than asking prices, with another 25% saying it is slightly less.

With bank-owned homes making up a significant portion of the current inventory, agents report that 62% of their non-investor buyers have a favorable attitude toward foreclosures, while only 27% have a favorable attitude toward short sales.

"With distressed properties still making up a sizeable portion of homes on the market, this inventory is being cleared effectively by buyers, who don’t mind investing a little to fix up a property in return for an attractive bargain," Kelly added.

Among buyers’ highest priorities were quality of schools, and condition and size of the home. The lowest priorities included public transportation, walkability and energy efficiency.

Most RE/MAX agents advise their buyers to hire a professional home inspector and to attend the inspection. Getting pre-approved for a mortgage, not merely pre-qualified, also is recommended.