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How Far Can We Expect Mortgage Rates to Drop?
Mortgage rates have started to go back down, thanks mostly to the Federal Reserve's decision to hold off slowing its monthly bond purchases.
Mortgage buyer Freddie Mac reports that the average rate on the 30-year loan dropped to 4.32 percent from 4.50 percent last week. The average on the 15-year fixed loan declined to 3.37 percent from 3.54 percent.
Both are the lowest averages since July 25.
Mortgage rates are nearly a full percentage point higher than they were in May, when the Fed first signaled it might slow its $85-billion-a-month in bond buy program. But the Fed kept the pace steady after lowering its outlook for economic growth. The bond purchases are intended to lower long-term interest rates, including mortgage rates.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
So how far can we expect mortgage rates to drop this time? It's pretty much anyone's guess, but experts all seem to be in agreement that we may see rates drop another half to a full point before they level off and start back up again. Remember, at any time, the Fed could reverse their bond purchase program decision, and when that happens, it may be too late for you to do anything about taking advantage of the lower interest rates.
If you've been thinking about looking for a Columbia SC home, consider the time it takes to find the right home, in addition to the loan application process. By the time you go through all of that, rates may have fallen as far as they will fall and could even be starting back up again. Now is the time to get off the fence if you've been waiting on mortgage rates.
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Will Home Prices Rise Next Year?
It would appear that Americans' love affair with real estate has returned. Most think home prices will go up over the next 12 months, especially upper-middle-income households. This according to a new Bankrate.com report.
Among households earning between $50,000 and $75,000 per year, some 65% expect prices to rise and just 6% expect prices to fall. Twenty-seven percent say they will stay the same and just nine percent forecast a decline.
In July, Bankrate established that 23% of Americans believe real estate is the best way to invest money not needed for more than 10 years. That was the second-most common response, slightly behind cash.
Bankrate found that Americans' financial security turned negative in September for the first time since February. The Financial Security Index slipped from August's 100.5 reading to 99.5 in September. Readings below 100 indicate deteriorating financial security compared with one year previous.
The readings on debt, net worth and overall financial situation dropped from August to September. Americans' comfort level with their debt took the biggest hit; those feeling less comfortable than one year ago (21%) now outnumber those feeling more comfortable (17%).
On a bright note, just one-in-eight employed Americans feel less secure in their jobs now than 12 months ago, a new low since polling began in December 2010.
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Damage Control After Disaster Strikes
Last month we covered what to do to prepare for a storm or disaster. This month, let's look at what happens afterwards.
Of course, the size and scope of a disaster, be it from Mother Nature, or a fire, determines just how far a homeowner can go in repairing the damage him or herself.
Often times it will be necessary to call in a professional who specializes in disaster restoration. But if the damage is relatively minimal, a homeowner can sometimes handle most – if not all – of it on his or her own.
Before Getting Started:
Before attempting to clean up and repair any kind of damage to your home, there are some basic considerations to take into account. First and foremost, if your disaster comes in the form of fire, it's vital to wait until the fire is completely out before attempting any restoration. Also, if the homeowner has insurance, he or she should contact the insurance company and notify them of the damage. The insurance provider can suggest ways the homeowner should deal with the fallout and they may even be able to recommend a professional fire restoration company.
Prevent Further Damage:
Those who wish to perform cleanup and restoration themselves must first be cleared to enter the home by the fire marshal or other governing emergency agency such as FEMA. The first step after is to get air circulating. Whether it be fire or flood, you want to do what you can do get air moving in the home. That means opening the windows in the home as well as placing a fan near the affected areas in order to help ventilate the area. Wet items should be dried as soon as possible. Dehumidifiers and fans can be used to dry heavier items like drapes and carpeting.
Carpeting:
Carpeting should be cleaned (preferably by a professional) both before and after general fire repairs as well as flood repairs. Some carpeting may require total replacement. The last thing you want is mold growing under your carpet where you don't see it, but where it can still cause your family a great deal of harm.
Cleaning Walls:
If dealing with fire damage, to clean soot stains from walls, it is necessary to use a chemical sponge – available from cleaning supply companies – or even paint thinner or rubbing alcohol.
If you're cleaning walls from a flood, again, it's necessary to know what you're doing to prevent or stop mold. More times than not, if flooding is the issue, you're better off calling in someone who is certified in mold remediation to take care of things for you.
If a smoky smell persist for months, it may be necessary to hire a professional restoration company to perform a thermal fogging, which should permeate the home to the point it kills all smoke odor. The same goes for mold. And understand, mold can appear many months after water damage has long been dried out on the surface.
These are just a few things homeowners can do to reduce the effects of fire or water damage.
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Mortgage Rates Move a Bit Lower
Mortgage rates moved a tad-bit lower over the past week or so, basically remaining in a holding pattern.
Freddie Mac says the average rate on a 30-year fixed-rate mortgage in the week ending Aug. 29 was 4.51 percent, down from 4.58 percent the previous week. 30-year rates are still close to 1 percent higher than they were a year ago. Mortgage rates still remain low by historical standards.
A 15-year fixed averaged 3.24 percent in the week ending Aug. 29, up from 3.21 percent last week. A one-year adjustable-rate mortgage averaged 2.67 percent, up from 2.63 percent.
Separate reports on housing last week may indicate higher rates have sidelined some buyers.
New home sales fell more than 13 percent in July, while pending sales of existing homes declined 1.3 percent last month.
The Mortgage Bankers Association reports a continued decline in mortgage applications, with applications to refinance an existing mortgage at a two-year low last week.
Mortgage rates have been rising because they tend to follow the yield on the 10-year Treasury note. The yield also has surged on speculation that the Fed's stimulus will slow. But the rate on the 10-year note declined last week to 2.78 percent from 2.90 percent the previous week.
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Will Flood Insurance Cost You More?
Last year Congress passed, and President Obama signed, the Biggert-Waters Flood Insurance Reform Act of 2012. The law extended the National Flood Insurance Program for five years and calls on the Federal Emergency Management Agency (FEMA) and other agencies to make a number of changes to the way in which the National Flood Insurance Program (NFIP) operates. Some of the required changes have occurred already, while others will be implemented in the coming months and over time.
The most important provisions of the legislation are aimed at putting the program on a more solid fiscal foundation and building a catastrophic reserve fund to provide for claims in years with unusually costly flood disasters. To strengthen the NFIP financially, the new law requires FEMA to begin charging rates that reflect true flood risk. The vast majority (81%) of NFIP policies will not be affected by the new law, because their premium rates already accurately reflect their flood risk.
For more information about changes to FEMA’s Flood Insurance Rate Maps (FIRM) and to see if your property is affected, click here.
Rate Changes Already Underway:
Full-risk rates now are being applied to newly purchased property, to property not previously insured, and to policies that are re-purchased after a lapse.
Premiums for older (pre-FIRM) non-primary residences in Special Flood Hazard Areas (SFHA) will increase by 25% annually until they reflect the full-risk rate.
Beginning October 2013:
Premiums for pre-FIRM business properties, severe repetitive loss properties (1–4 residences) and properties on which claims payments exceed fair market value will increase by 25% annually until they reflect the full-risk rate.
Routine rate revisions will include a 5% assessment to build a catastrophic reserve fund.
Anticipated in Late 2014:
Premiums for properties affected by map changes will increase by 20% each year to reach full-risk rates.
Who Won't Be Affected:
Owners of primary residences in SFHAs will keep the subsidized rates until the home is sold; the policy is allowed to lapse; a new policy is purchased; or a string of severe losses is experienced.
Post-FIRM rates for all zone classes will be unaffected by Section 100205 of the Biggert-Waters Act.
Phase-out of Other Discounts:
The new law calls for phasing out discounts, including grandfathering. Grandfathering allows homes that were constructed according to an earlier standard to retain that insurance rating when new maps are issued. Because of the complexity of this issue, FEMA is conducting an analysis before full implementation can take place, scheduled for late 2014. Many discussions are taking place in Congress that may further affect the implementation of this provision.
Premiums also will increase for properties insured by the Preferred Risk Policy (PRP) Eligibility Extension, which had allowed structures mapped into a high-risk area to remain insured at lower PRP rates.
Phase-out of both grandfathering and the Preferred Risk Eligibility Extension will begin in 2014. Rates are anticipated to rise 20% per year over a 5-year period until they reach full risk rates. The CRS discount rates will not be affected by the Biggert-Waters Act..
Preparing For The Next Big Storm
So far, the 2013 hurricane season has been eerily quiet. There's no telling whether the rest of this hurricane season will bring anything like Superstorm Sandy, which flooded more than 150,000 homes, killed more than 140 people, and left about 8.5 million homes in 20 states without power. A relatively minor storm can also cause major damage if it includes high winds, heavy rain, or tree-snapping ice or snow.
Even a simple blackout can happen at any time and last for days. More than a half-million residents were still without power three to four weeks after Sandy struck. And if you think most homeowner insurance policies cover disasters, think again: Flood insurance is just one of the "extras," assuming it's even available in your area.
Some areas are obviously more prone to hurricanes and tropical storms than others. But whether it's hurricanes, tornados, earthquakes, or just a plain old severe thunderstorm, no one is 100 percent immune from Mother Nature. There are some things you can do well in advance of a hurricane, or other super storm.
Things To Do Now, Well in Advance of the Next Big Storm:
Build an Emergency Kit
It should have a whistle to attract help, dust masks for each member of your family, duct tape, a wrench or pliers to turn off water if needed, flashlights and batteries, and local maps. Plan on 1 gallon of drinking water per person per day for at least three days. Include moist towelettes, garbage bags, and plastic ties for personal sanitation. Also consider changes of clothing and sleeping bags or blankets.
Be Prepared for Injuries
A first-aid kit should be stocked with bandages in various sizes, sterile dressings and gloves, hand sanitizer and antibiotic towelettes, a thermometer, pain medicines, tweezers, and scissors.
Check Your Fire Extinguishers
You should have one with a minimum classification of "2-A:10-B:C" on each floor. Check the dial or pop-up pin for adequate pressure each month. Professionally repressurize extinguishers older than six years, and replace any older than 12 years.
Have the Right Phones
Keep at least one corded phone because cordless phones require AC power. A post-Sandy survey also found that cell phones were more reliable than landline phones, though we lack data on differences for fiber and cable vs.older copper-wire systems. Be sure cell phones are charged. And have an out-of-town contact you can call, because long-distance phone service can be more reliable than local service during and after a storm. Be sure to have emergency numbers already pre-programmed into your cell phone. You don't want to be scrambing around trying to find emergency numbers when an actual emergency occurs.
Have Some Ready Cash
Banks and ATMs could be out of service, assuming you can get to them.
Stay Safe During a Storm
Find the safest place. Stay in a central room without windows. Have kids? Ease the fear factor with books, a toy or two, and if you have power or a generator, some movies and video games.
Avoid Electrocution Risks
Don't use any plug-in device if flooding or wetness is nearby. Landline phones can also be a shock hazard in an electrical storm. If you must make a call during a storm, use a cell or cordless phone if possible—or use a landline phone's speaker mode to reduce contact with the handset. Avoid baths and showers until the storm passes. And watch out for downed power lines and live wires.
Use Cars Safely
Obey emergency crews and follow designated routes. If your vehicle stalls in water, shut off the ignition and seek higher ground; the leading cause of Sandy-related deaths was drowning.
Next month in our October newsletter, we're going to cover additional items related to storms, like "Damage Control After A Storm", and "Home Insurance: Are You Really Covered?"
Rising mortgage rates of late are giving scare to would-be homebuyers. Rates that were sitting at historic lows a few weeks ago are now skyrocketing upward. A tick down here and there in between jumps, but overall, those record low rates seem to be history now.
We've been seeing a slow and steady recovery according to analysts, and now rising mortgage rates may cause the economy to backfire. Matt Markham explains in this report…
What do you think? Will rising mortgage rates cause a backfire in the economy, or are rising mortgage rates actually good for the economy? We'd love to hear your opinion. Just chime in using the comment box below.
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Real Estate Values Set Record Nationally
U.S. home prices jumped 12.1 percent in April from a year ago, the most since March 2006. More buyers and a limited supply of available homes have lifted prices in most cities across the country, a sign of a broad-based housing recovery.
The Standard & Poor’s/Case-Shiller 20-city home price index released recently also rose 2.5 percent in April from March, the biggest month-over-month gain on records dating back to 2000. Prices rose from a year earlier in all 20 cities for the fourth straight month. Twelve cities posted double-digit gains.
The housing recovery is looking more sustainable and should continue to boost economic growth this year, offsetting some of the drag from higher taxes and federal spending cuts. Steady job gains and low mortgage rates have encouraged more people to buy homes.
David Blitzer, chairman of the index committee, said the housing recovery should continue even with mortgage rates rising. Borrowing rates have jumped after Federal Reserve Chairman Ben Bernanke said recently that the Fed could slow its bond-purchase program, which is intended to keep long-term interest rates low.
Prices are rising because demand is up and fewer homes are available for sale. That's made builders more optimistic about their prospects, leading to more construction and jobs.
The index covers roughly half of U.S. homes. It measures prices compared with those in January 2000 and creates a three-month moving average. The April figures are the latest available.
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Rising Mortgage Rates Raising Concerns
Although still low by historic standards, the recent increase in mortgage rates have put a damper on a home refinancing boom and will make buying a home noticeably more expensive for borrowers. What's more, some experts say, the rapid run-up could pose a threat to consumer confidence, delivering a blow to the recovering housing markets and even beyond.
Mortgage rates have jumped a full percentage point above their recent record lows, raising costs for borrowers and questions about the housing recovery.
A standard 30-year fixed-rate home loan hit an average of 4.63% recently before backing off just slightly. That's up from 3.49% on May 3rd and an all-time average low of 3.44% during a week in December.
Regardless of whether the jump in rates reflects a new reality or just volatility in a skittish market, refinance volume is likely to fall further. Home purchases have been on the upswing, but not enough to make up for the decline in refinancing.
Higher rates have an instant effect on family budgets. At 3.5%, a borrower who bought a home for May's median price of $368,000 would have a principal-and-interest payment of $1,322, assuming a 20% down payment. At 4.5%, that payment rises to $1,492.
At 6%, still a decent rate by historical standards, the payment goes up to $1,765.
Despite the run-up in rates, homes remain affordable in most markets across the nation with prices still about 25% off their peak during the housing bubble.
Higher mortgage rates tend to have the immediate effect of pricing certain stretched borrowers out of the market. But it will likely take rates rising to 6% over the next 12 months to depress home purchases and prices.
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Bad At Math? You're More Likely To Lose Your Home
According to a study released last week, math-challenged borrowers were five times more likely to default on their loans.
The study examined several hundred borrowers who held mortgages issued in 2006 and 2007 — right before the mortgage meltdown. Of the study subjects, 25% of the borrowers who scored in the lowest bracket for math skills had defaulted on mortgage payments within five years of getting the loans. Meanwhile, only 5% of those in the top tier for math skills defaulted.
The survey sample included homebuyers from a variety of backgrounds, from blue collar workers to corporate professionals. Their math ability covered the gamut — from those with very limited abilities to a mathematician with a six-figure salary.
The researchers controlled for differences in overall intelligence by measuring for verbal and general IQs, as well as math skills, and controlled for socioeconomic factors, such as age, sex, income, ethnicity and local labor market conditions.
Surprisingly, it did not seem to matter what kind of mortgage the borrowers had, the researchers found.
The researchers asked the survey participants a series of five basic questions. The simplest question asked them how much a $300 sofa would cost at a half-price sale. The most difficult asked how much a savings account of $200 would grow to after earning 10% interest for two years.
Determining why those with poor math skills default on mortgages more often than others will take more research, but previous studies suggest that people who struggle with simple math also struggle with handling their finances. This group tends to budget less carefully, misuse credit cards and mishandle financial emergencies, such as temporary income losses. When they hit a rough financial patch, they may not understand the math well enough to negotiate the most favorable settlements with lenders.
The report suggested that benefits could come from improved financial education. The more homeowners understand money matters, the less likely they are to mishandle them.
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More Robust Housing Recovery Forecast in 2013
It’s time once again to gaze deeply into our crystal ball to predict what the New Year may bring to our cherished housing industry.
Of course, everything hinges on whether we all find ourselves going over a Fiscal Cliff, but we’re not going to touch that red hot iron for now, we’ll save that for later if Congress and the President can’t agree on things.
Meanwhile, we’re devoting this entire newsletter to looking ahead, and hopefully assuming we won’t go over that cliff, so let’s get started…
Year-end reports and forecasts for the New Year are rolling in with ever more positive numbers for the housing recovery to continue.
November’s existing home sales rose 5.9 percent over October and are 14.5 percent higher than sales in November 2011, according to the National Association of Realtors (NAR). NAR says existing home sales are at the highest level they’ve been since November, 2009.
The national median existing-home price for all housing types was $180,600 in November, up 10.1 percent from November 2011 and the ninth consecutive monthly year-over-year price gain, which last occurred from September 2005 to May 2006 – during boom times.
In the new home sector, builders are puffing up with confidence. The NAHB/Wells Fargo Housing Market Index (HMI), which measures builder confidence in the single-family housing market, has posted gains for eight consecutive months and now stands at a level of 47.
That’s near the midpoint of 50, where an equal numbers of builders view the market as good or bad. The HMI has not been above 50 since April of 2006.
Growing households are also boosting confidence. In the early 2000s, America was generating 1.4 million new households every year. The bust cut that by about two-thirds to 500,000. Right now, new households are formed at nearly 900,000 per year, according to NAHB.
Freddie Mac, however, recently released a forecast that projected household net growth at 1.20 to 1.25 million in 2013.
A segment of renters bracing to take the homeownership plunge are adding to the rosy 2013 forecast. More than one in three of today’s renters, 31 percent, plan to buy a home in the next two years, a 9-point increase from 22 percent in January 2011, according to Trulia’s American Dream survey.
Near record low interest rates shouldn’t hurt the recovery…
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Mortgage Rates Start 2013 Near Record Lows
Fixed-rate mortgages ended 2012 by hovering near record-breaking lows and keeping home buyer affordability high, Freddie Mac reports in its weekly mortgage market survey.
“The 30-year fixed-rate mortgage averaged 3.66 percent for 2012, the lowest annual average in at least 65 years,” says Frank Nothaft, Freddie Mac’s chief economist. “Rates on 30-year fixed mortgages were nearly 0.6 percentage points below that of the beginning of the year, which translates into an interest payment savings of nearly $98,600 over the life of a $200,000 loan. Moreover, opting for a 15-year fixed mortgage at today’s rates, a home owner could save an additional $138,400 in interest payments.”
Nationwide, the average 30-year fixed rate mortgage rate is starting 2013 at 3.35 percent. Last year at this time, 30-year rates were 3.95 percent. 15-year fixed rates are starting the new year at or around 2.65 percent, compared to a year ago at 3.24 percent. 1-year and 5-year adjustable-rate mortgages are also starting the new year below last year’s levels.
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Home Prices Projected to Continue Increasing in 2013
More 
evidence that the housing market is trying to dig out of the doldrums and set it sites on recovery came out with a panel of 105 professional forecasters projecting home prices will continue to increase in 2013 rising 3.1 percent for the year, according to the December 2012 Zillow Home Price Expectations Survey.
The most optimistic group of forecasters predicted an average increase of 6.3 percent in home prices for 2012. The most pessimistic predicted an average increase of 3 percent for 2012.
The most optimistic group for 2013 home prices predicted an average increase of 4.9 percent and the most pessimistic an average increase of 0.8 percent. There is much concern about a negative impact on the housing market recovery as a result of changes to the mortgage interest deduction (MID), if made.
Most of the forecasters feel that changes to the MID would have almost no impact on overall home prices in the U.S. and would instead just impact high-priced homes.
If the (MID) eligible mortgage is reduced to $500,000 and 2nd home deductions are eliminated, 55 percent of the respondents felt this would have “little to no near-term impact on overall home prices.”
If the MID is eliminated entirely over a period of several years, then the biggest negative impact on the market is expected by the panel, but even then just on high-end home prices with 70 percent of respondents saying they would not expect those home prices to fall moderately or significantly however that there would be “no overall impact” on U.S. home prices as a whole if that were to happen.