Articles of Interest

Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

by C. Arthur West III, Esquire on 05/14/12

Once again we are compelled to lead with home prices. That's actually a good thing, because home prices are increasingly on the rise and increasingly portend higher prices.

The latest pricing data, from Trulia, show that asking prices rose nationally 1.9 percent in the three-month moving average from February to April. When you look at monthly comparisons, asking prices were up 0.5 percent from March to April.

Of course, asking isn't getting – an asking price isn't the sales price. But we all know that we set prices rationally. It's important not to waste time on an unrealistic asking price. In other words, Trulia's data suggests that prices are rising, and rising strongly, in many markets. This, in turn, suggests that we should expect higher reported sales prices from S&P/Case-Shiller and Corelogic in the near future

Seeing a rising national asking price is nice, but it's really meaningless to any particular market. The price trend in Denver has no bearing on the price trend in Philadelphia or vice versa. The same can be said for most combinations of any two markets.

What we find interesting, though, is the price trends in the most hardest hit areas – such as Phoenix and Miami – are posting double-digit increases. If we've said it once, we've said it numerous times over the past couple years: markets clear. In other words, prices fall to reach a level where they draw sufficient interest to clear inventory. Once inventory clears, prices again start moving higher.

Clearing markets is painful but salutary, and maybe not as painful as our expectations lead us to believe. We mentioned a couple weeks ago what turned out to be the non-issue of an explosion in option ARM defaults that were expected to sink the market. That never occurred.

The foreclosure overhang that everyone has been talking about for the past six months also appears to be a non-issue. CNBC reports that the number of homes entering foreclosure is up for April, but is still down more than 30 percent from a year ago.

Earlier this year, most financial outlets were lamenting impending doom once banks started foreclosing in earnest and dumping properties on the market. Lost in all the rhetoric was the fact that bankers are rational. Short sales, deeds-in-lieu, renegotiation make a difference, and they've been on the rise. Bankers don't want to upset markets, especially through mass REO sales.

The lesson here is that it's rarely the anticipated that upsets market; it's mostly the unanticipated. The distressed property overhang has been anticipated and is being dealt with accordingly and rationally.

What we anticipate, and what we would like to see at this point are more acco mmodating lending standards. The current overly strict standards is the number one hindrance to the recovery in our opinion. To be sure, mortgage lending rates remain at historical lows, and that's good for those able to get the rate. But what we really need are rates and mortgage products to acco mmodate all borrowers needs, not just those with 800 FICO scores.

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Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

by C. Arthur West III, Esquire on 05/02/12

Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

Market Comment

Prices always make news, as well they should. A price is an

important factor in determining loan amount and equity position.

Price determines whether someone buys, sells, or holds. You

could say that price is everything.

With that thought in mind, home prices have been volatile in

2012, which has lead to volatile sales data. But though prices

have been volatile, they have been trending higher. S&P/CaseShiller's 20-city composite home price index shows prices increased 0.2 percent in February compared to January.

Though the S&P/Case-Shiller index is the most monitored index,

it's a little stale, being two months in arrears. We were more

interested in contemporary price data released by Zillow, which

show home values were up 0.5 percent in its 30-market index.

Zillow believes 19 of the markets it follows have either hit bottom or are expected to hit bottom by the end of the year. Zillow

chief economist Stan Humphries advises, "For people who have

been waiting to time their home purchase close to market bottom, it’s time to start shopping.”

Not to pat ourselves too hard on the back, but we've been offering similar advice for the past six months. Now, no one can precisely call a bottom, but you can get a “vibe” in your market

through experience and information. More of the vibes and

much of the information is turning positive in many local markets. To be sure, bad news can still be found, but if you wait for

nothing but good news, the bottom will have long been gone.

Existing home sales prove that the news still isn't all good. Sales

for March came in softer than expected, posting at 4.48 million

annualized units, a 2.6 percent dip from February. The good

news is that market dynamics appear to be shifting from mostly

low-end homes to higher-end ones: the median national home

price rose a strong 4.6 percent to $163,800.

As for new homes sales, the news was decidedly good. New

home sales posted a better-than-expected 328,000 annualized

units in March, after being revised strongly upward to 353,000

units in February. The national median sales price dipped 1 percent, to $234,500, in March, but we'd be surprised not to see a

price rebound in April, because of a dearth of new homes. In

fact, the supply of unsold new homes fell to just 144,000 in

March – the fewest on record dating to 1963.

Mortgage rates, meanwhile, continue to skim along the bottom,

though they're showing no inclination to move meaningfully

lower. Again, we can't stress enough the risk/reward paradigm

in the mortgage lending market: Even after a spat of bad economic news in Europe, rates hardly moved. This suggests to us

that waiting for still lower rates means incurring a great deal of

risk for little reward.

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Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

by C. Arthur West III, Esquire on 04/23/12

Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

Market Comment

All good things really do end, and that includes optimism.

Home builder sentiment had been improving measurably for the

past seven months, until this month when the NAHB/Wells

Fargo Housing Market Index fell three notches to score 25 compared with March's 28.

Many home builders had expected the volume of signed contracts to pick up at a faster pace by this time of year. Unfortunately, that hasn't been the case. Recent economic data over the past month point to a sputtering, if not stalled, economy.

The latest housing starts data, no doubt, impacted home builder

sentiment. Starts dipped 5.8 percent in March after decreasing

2.8 percent in February. The March pace of 654,000 annualized

units fell far below market expectations for 700,000 units.

March's drop was driven by a nearly 20 percent decline in multifamily starts.

Home builder sentiment might be down on volume, but it should

be up on price. We were all somewhat concerned on the direction prices were taking at the beginning of the year, but that appears to have changed for the better in many markets.

According to RE/MAX's latest price report, home prices in the 53 largest

cities it follows increased 5.8 percent year-over-year, with the

median sales price rising to $184,525, in March.

It's worth noting that RE/MAX CEO Margaret Kelly shares our

sentiment on markets and prices, in that real estate markets are

local, wholesale price declines are behind us, and prices are stabilizing and improving. Ms Kelly says, "Although we don't expect home prices to rise in every market at the same rate, the worst is definitely behind us, and a slow, steady recovery is taking hold." We couldn't agree more.

On the other hand, we don't necessarily agree with many of our

colleagues on mortgage lending rates. Rates have been volatile

and mostly lower over the past two weeks. Rates are again near

an all-time low. This has created another spurt of refinancing.

Rising interest rates shook many borrowers back to reality.

When rates dropped, borrowers didn't want to miss an opportunity that could prove fleeting.

Taking advantage of these low lending rates is a smart move.

We've laid out a case over the past couple months on why we

think interest rates will head higher, at least in the long term. No

new data have convinced us otherwise.

Admittedly, it's impossible to predict interest rates with certainty

in the near term, but a few factors are worth considering: We've

seen a marked increase in rate volatility that has moved the market back to a sideways trend. To be sure, rates could be higher

or lower over the next month, but given their proximity to alltime lows and their unwillingness to move lower, we think there's more risk than reward in waiting for still lower rates.

Last month, lending rates shot up nearly 50 basis points, which

shocked many borrowers. Those who thought they missed the

boat got lucky, but they might not be so lucky on the next lending rate spike.

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Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

by C. Arthur West III, Esquire on 04/16/12

Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

Market Comment

The shift from winter tranquility to spring volatility is readily

apparent in the mortgage markets. Fed Chairman Bernanke has

noted that there are still considerable challenges which face the

economy and that the Fed’s low rate stance is what is driving

them back downward. Freshly-released minutes of the last Fed

meeting from three weeks ago reflected the strong economy

leading up to that point. This pushed rates back up, with the

deepening woes in Europe and the weak March employment

report causing rates to go back down again.

The statement accompanied by the close of the Monetary Policy

Setting Committee and subsequent testimony of Fed Chairman

Bernanke both suggest that the economic climate may require

additional support for the coming time period. The meeting minutes themselves indicate otherwise, in them is a stronger assessment of the state of the economy – one in which the Fed may be less inclined to start or expand any programs designed to keep interest and mortgage rates low into the future.

In other words, the economy is growing but with less strength

than previously thought. Interest rates had been easing somewhat, as an accumulation of the most recent economic data pointed towards expansion, with slightly less upward momentum at the end of the first quarter than at the beginning of it. The

mixed signals are continuing.

Adding to the challenge of determining whether or not the current market conditions are moving upward or downward is the recent unemployment figures with 357,000 new applications for unemployment benefits filed during the last week of March.

However, fewer people getting laid off is different than more

people getting hired and new jobs being created. While job retention is an indicator of economic improvement, it is still a wobbly economy which needs steadying.

Broadening the recovery means hiring the under-employed as

well as the unemployed. Over the past three months, a spate of

hiring pushed new job creation well over the 200,000 level.

Upon closer examination, the 120,000 new hires in March are

exactly one-half of the February gain. This weaker-thanexpected report counterbalances the FOMC’s ‘stronger’ minutes,

and underlies the cause of retreating interest rates. While the

nation’s unemployment rate slipped to 8.2% for the month, the

contraction in the labor force itself accounts for at least a portion

of the declining rates.

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Mortgage Matters - Compliments of Sally Minnock, Holland Mortgage...

by C. Arthur West III, Esquire on 04/09/12

Just as anticipated, mortgage rates have settled back a bit after its

recent upward movement of fifteen basis points over the last two

weeks. Widespread upward economic movement fostered the

rise, but a more realistic approach to the economy’s forward momentum seems to be creeping back in.

Rates have bumped off a little from their historic bottoms of

February, but the modest movement should not create any additional disturbance or turbulence for the housing market. Even in

the worst-case scenario, the eighth percentage point increase in a

loan’s interest rate is probably not enough to ruin most deals.

Especially since that slight increase could be ‘brought down’

through the payment of approximately a half-point fee, perhaps

less.

It should be no surprise to anyone who has applied for a loan

recently that banks are being much more careful. A new repost

indicates just how tight conditions have become – and how even

borrowers with favorable credit profiles are being denied. Loans

closed by banks and mortgage lenders in February had borrowers

with an average credit score of 750; this average is up from 740

six months earlier, and an average loan-to-value ratio of 76%,

with the average denied loan having a credit score of 699 and a

loan-to-value ratio of 83%.

While there is no hard downshift in economic activity, research

shows that essentially, with the new spring housing season approaching, we are in the same boat, just with more favorable mortgage rates. An accumulation of February data and early data available for March suggests that activity is stabilizing with

a softer trend beginning. Federal Chairman Bernanke’s reassurance about the direction of interest rates doesn’t hurt either, in

terms of trimming any upward pressure for current rates.

Recent weekly data is reinforcing the notion that a cooler economic climate is in formation. Claims for new unemployment benefits moved downward in January to a rate which is the lowest it has been in 4 years.

However, the unemployment benefits

rate does not incorporate in statistics about workers who are under-employed. Approximately 9.3 million workers are considered underemployed as defined by the Bureau of Labor Statistics. That number is up from just over 8 million in July 2011,

but down from a peak of approximately 9.5 million in September

2010. Overall, employment gains for March will be no better

nor no worse than February.

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