This guy says there are 5-6 million people who were or could be homeowners but are on the sidelines – the buy vs. rent equation isn’t compelling enough.
She says these potential buyers don’t have the down payment and don’t know about FHA, but she might be guessing. Though FHA is very expensive and caps out at $546,250, it’s definitely a viable option in San Diego County. Of the 14,129 house sales this year, 1,459 of them (10%) have been financed via FHA.
Remember when we said that the market would be seasoned when we see more FHA and VA purchases…..the bidding wars would have died down, and buyers with more horsepower have passed on those deals? Here are the percentages of FHA+VA loans used to purchase SD houses:
2011 = 35%
2012 = 31%
2013 = 25% (FHA got tougher in June, 2013)
2014 = 25%
There are more VA loans than FHA this year (59% vs 41%).
Those projections, which Ms. Yellen noted as an indication of their recent intentions, show officials expect to raise their benchmark rate to 1% by the end of next year. Many officials have affirmed investors’ belief that the Fed won’t start rate increases until about the middle of 2015.
What happened to mortgage rates this time?
Not only was there NO panic, but rates are actually LOWER today then they were last summer – and jumbo still below conforming:
While the real estate market feels like it is heading for an off-season malaise, there is going to be some real opportunity for buyers who stay in the game.
The motivated sellers who held out with a too-high price hoping to snag a springtime buyer are starting to realize that summer is going to be over before you know it. August is only 2 weeks away!
If they can live with less – and some of them can – buyers could reap a double benefit of lower home price AND a 30-year-fixed jumbo rate at all-time lows.
Pay a point, and borrow $1,000,000 with a jumbo fixed rate in the high-3%s!
The Fed is going to stop buying bonds in October – that should give the national media some more fodder to kick around during the dog days of summer!
They will be suggesting that mortgage rates will be rising soon!
A few thoughts:
1. The last time the Fed halted their QE a couple of years ago, mortgage rates went DOWN, due to private investment picking up the slack.
2. Other factors have an effect on rates. A good example is today’s news about Portugal which sent our 10-year treasury yields to 6-week lows:
3. Wars and elections tend to keep rates down – and both are brewing.
What will it mean for real estate? Rates could certainly rise, and if they get close to 5% we can probably expect to pack it in until springtime. Buyers will appreciate the break, and sellers aren’t that motivated anyway.
If rates stay where they are today (or maybe drop a little?), we could see a vibrant 3rd quarter and buyers feel a press to get ‘er done before rates potentially go up. I don’t think rates will go up much if at all – the range has been pretty solid the last couple of months.
In July 2013, we wrote an FM Commentary about the impact of rising mortgage rates on the housing recovery. At that point, rates had risen to 4.51 percent.
We examined the impact of rising rates on home prices and home sales during the two periods since 1990 when the market had experienced a sharp rise in mortgage rates.
The first instance was a 14-month period from October 1993 to December 1994, when mortgage rates increased by 237 basis points (from 6.83 percent to 9.20 percent).
The second instance of a meaningful rise in rates was longer and the rate rise was smaller – a 19-month period from October 1998 to May 2000, when mortgage rates increased by 180 basis points (from 6.71 percent to 8.51 percent).
Based on these past experiences, we suggested that rising rates were more likely to lead to a slowdown in home purchases rather than a decline in prices.
Hat tip to daytrip for sending this in fromcnbc.com:
The sharp rise in home prices in 2013 caused two conflicting results: The return of positive home equity for hundreds of thousands of borrowers and considerably weaker affordability for an equally large pool of potential homebuyers.
While positive equity allows more borrowers to move, weaker affordability keeps them in place. So which will be the greater driver of housing this spring?
“There’s going to be a reality check in the spring in terms of realizing that what we saw in 2013 is not a real market,” said Daren Blomquist of RealtyTrac, a real estate sales and data website. “It’s a nice bounce-back market, but ultimately you need the biggest pool of potential homebuyers out there to be able to afford those homes.”
In an analysis of housing affordability, RealtyTrac found that the estimated monthly house payment for a median-priced, three-bedroom home purchased at the end of 2013 was a whopping 21 percent higher than it was at the end of 2012 in more than 300 U.S. counties. That includes mortgage, insurance, taxes, maintenance and the subtracted income tax benefit.
The rise is the result of higher home prices and higher mortgage rates. RealtyTrac used a 30-year fixed-rate mortgage with an interest rate of 4.46 percent and a 20 percent down payment. That is versus a 3.35 percent interest rate the previous year.
Some metro regions, especially in California and parts of Michigan, saw monthly house payments rise about 50 percent from a year ago.
Yellen was confirmed last night to be the next Fed chief, which should be calming news for mortgage rates. But they haven’t changed much anyway since the Fed announced the $10B taper on December 18th.
30-Year Fixed Rate:
December 12: 4.42%
January 7: 4.62%
Just the mentioning of the taper caused rates to pop up 1/2% in one week at the end of June, so losing only 1/4% after the actual taper should mean a fairly steady road ahead.
Another benefit for the Fed this year is that the volume of MBS has dropped dramatically, so they could spend less without much, if any, effect. With rates in the mid-4% range, the refinance market has had its head caved in, and mortgage apps are at a 13-year low:
Mortgage rates should stay reasonable for now, but the market doesn’t really get cooking until next month. Hopefully we’ll be coming off a big Chargers victory in the Super Bowl! It could happen – Manning always chokes, and New England has a lot of injuries!
Here’s how a computer simulation figured the winner:
I did an AccuScore simulation of the playoffs and BOOM. Your San Diego Chargers are winning the Super Bowl. pic.twitter.com/mT87xLSZbh
Fannie Mae and Freddie Mac are too big, and changes are coming.
Beginning on January 10th, the new QM rules take effect – limiting the debt-to-income ratios to 43%, and capping points and fees charged by lenders to 3% of the loan amount.
Because lenders will be subject to repurchasing any mortgages that don’t comply, some lenders are talking about limiting the DTI to 39% to provide a margin of error.
In the past, borrowers with compensating factors have been able to stretch their D-T-I ratio as high as 50%. Now they won’t.
Is it a big deal?
It is for lenders, but to home buyers and sellers all it means is that there will be fewer people in the buyer pool for each house for sale. Buyers may need to lower their sights, which will make the cheaper homes in each market more competitive.
The other change is how Fannie/Freddie will add more fees depending on your down payment and credit score. It is rather arbitrary too, where borrowers with 680-740 FICO scores get hit the worst. They can look forward to a nasty choice; to pay 1/4% to 3/4% higher in rate, use a 30% down payment, or manipulate your credit score downward to pay less fees.
For home buyers who are looking for more to reasons to stay on the fence, this is a truckload of fun. But for the highly motivated buyers (the ones making the market), all it means is being more determined to fight for the best deal you can find, and hope that home prices will reflect the new era.
For anyone selling a great house on a great street, these changes won’t mean a thing. For those trying to sell an inferior home for retail-plus, don’t be surprised if 2014 brings a more-measured response.
“Rates will be low for a long long time …” As far as the “Appropriate timing of policy firming”, the participants moved out a little with three participants now seeing the first increase in 2016.
Buyers should be rejoicing at the thought of rates staying low for the next couple of years, and be very deliberate about what home they buy, and for how much. Conditions are ideal for the wait-and-seers!!
But can buyers keep a hold of themselves?
In spite of every reason to stay patient, buyers will be tempted to jump at every decent deal they see. The definition of ‘decent deal’ will likely be a moving target in 2014!
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