A giant leap for mankind? Okay, perhaps we are exaggerating here. However, we do feel that a very small step taken could become very big news in the long run. For years, consumers, professionals and analysts have been complaining that tight lending standards have been holding up the economic recovery. The reasons for these tight standards were obvious. During the “sub-prime” boom of a decade ago, credit standards became so loose that a real estate bubble formed. We all know what happened from there. The bubble burst and lenders swung the pendulum severely to the conservative side. What you may not have realized is that the Federal Reserve Board’s policy of moving interest rates to historic lows to combat the slump has actually prolonged the conservative underwriting trend. How?
Lenders have been inundated with refinances for some time now. If business is that good, why invite more business in the door by loosening credit standards? Well, now that the real estate recovery is underway and rates are moving up a bit, we get news that banks are indeed loosening credit standards ever so slightly. We think this is one other step that will help make the recovery even stronger. In this case, higher rates are actually good news. There is a lot of latent demand out there and if this demand increases, so will job creation and this will create more demand for real estate and consumer goods. Five years ago, we were in a vicious cycle. Slightly looser credit could help us move to a full virtuous cycle. Don’t expect the subprime days to come back, but every little bit helps. And if you read that rates have increased, you may realize that this could be the last opportunity to take advantage of the Fed’s sale on money — whether you are looking to purchase a home, refinance or even purchase an automobile. Don’t step, leap at the opportunity.
The Markets. Mortgage rates have now stayed below 4.0% for one year, according to the Freddie Mac survey. Freddie Mac announced that for the week ending March 21, 30-year fixed rates fell from 3.63% to 3.54%. The average for 15-year loans decreased to 2.72%. Adjustable rates were mixed but stable, with the average for one-year adjustables down slightly to 2.63% and five-year adjustables remaining at 2.61%. A year ago 30-year fixed rates were at 4.08%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Low and stable inflation is placing downward pressure on fixed rates for home loans. Annual growth in the consumer price index has remained at or below 2 percent for the past four months, and for the producer price index even lower. This, in part, is why the Federal Reserve monetary policy committee on March 20th lowered the upper end of its inflation forecast for 2013. In addition, our March Outlook calls for 30-year fixed rates on home loans to remain below four percent throughout this year.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated March 22, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.11%||0.12%|
|1-year Treasury Security||0.14%||0.16%|
|3-year Treasury Security||0.38%||0.40%|
|5-year Treasury Security||0.81%||0.85%|
|10-year Treasury Security||1.95%||1.98%|
|12-month LIBOR||0.764% (Feb)|
|12-month MTA||0.178% (Feb)|
|11th District Cost of Funds||0.962% (Jan)|
A very tight mortgage lending environment “promises improvements this year as the drivers of tough credit standards reverse,” according to Moody’s Analytics ResiLandscape Report. Still, lending will remain tight by historical standards, the report notes. Tight underwriting conditions have been one of the main obstacles for the housing market recovery. But the credit agency says that those conditions began to ease somewhat this year and likely will continue to. “Rising house prices give lenders more breathing room to extend credit,” the analysts at Moody’s noted. Over the past year and a half, large lenders have loosened up or held standards stable on prime loans for originations, according to the Survey of Senior Lending Officers. Aiding lenders’ confidence is that mortgage delinquencies have fallen to pre-recession rates. “Being right-side up on the mortgage improves a borrower’s credit profile. It also lowers the risk of default and increases the likelihood of trade-up buying,” according to the Moody’s report. Residential loan supply will remain constrained, but “improved consumer credit quality combined with steady growth in jobs, low interest rates and modestly rising house prices makes it clear that more households will be able to qualify for a home loan,” Moody’s said. “Greater credit availability will in turn help drive stronger home sales and stronger price appreciation and help keep the housing market and the larger economy on an upward path.” Source: HousingWire
Homes are selling faster as buyer demand picks up; leaving a very low supply of homes left for sale, according to the latest February MLS data figures from Realtor.com. Homes in February sold faster than in any February since 2007, according to the site. In February, homes were on the market for a median of 98 days—that’s down from 123 days in February 2011. In some markets, homes are spending even less than a month listed for sale, most notably in places like California. For example, in Oakland, Calif., homes spent a median number of 14 days on the market in February before they were either sold or removed from the market for other reasons, according to the Realtor.com data. Sacramento’s median number of days on the market was 21. A total of eight metros in the top 10 for fastest selling times were in California, with only Denver (median 28 days) and Seattle (median 33 days) rounding out the list. The median number of days on the market was also less than two months in places such as Phoenix, Washington, D.C., Detroit, Minneapolis, Atlanta, Dallas, Orlando and Fort Lauderdale. With home sales picking up pace, buyers and sellers are less likely to see price reductions on homes and to see more multiple offer situations, Curt Beardsley, vice president with Move, which operates Realtor.com told USA Today. Source: USA Today
Recent home buyers who want a walk-in closet but didn’t get one in their home say they’re willing to spend $1,350 for one. That’s just one of the important findings in the 2013 Profile of Buyers’ Home Feature Preferences, released by the National Association of Realtors®. Buyers who wanted new kitchen appliances but didn’t get them say they’re willing to spend $1,840 for them. Those who wanted air conditioning are willing to spend $2,520. The report looks at 33 home feature preferences based on what a representative sample of U.S. households that bought between 2010 and 2012 say they value. Just over 2,000 households participated. Among the findings: Households in the South tend to want the biggest and newest homes, and they like wooded lots. Those in the Northeast are most likely to like hardwood floors. First-time buyers and single women are big buyers of older homes. Households with children and move-up buyers like larger homes. The report also contains these tidbits on buyer preferences:
- Among buyers 55 and older, 42 percent want a single-level home, compared to just 11 percent of buyers under age 35. Single women also tend to place importance on single-level homes.
- Single men want finished basements.
- Single men and married couples place importance on new kitchen appliances.
- Among all 33 home features in the survey, central air conditioning is the most important to the most buyers; 65 percent consider this very important.
- The next most important feature is a walk-in closet in the master bedroom; 39 percent considered this very important.
Also important — buying a home that’s cable-, satellite TV-, or Internet-ready. Source: NAR