Tuesday, August 26, 2014

Housing Market Update

Below is an article by the KCM Crew about the housing market in the US.  There are a lot of positive signs for the housing market but this often overshadowed by negative articles not weighing in all the variables and factors.  Here is the link: A 'Soft' Housing Market? We Beg to Differ

There are some pundits lamenting the softness of the 2014 housing market. We can’t understand why. Though it is true that the early part of the year disappointed because of a myriad of reasons (ex. weather, lack of inventory, less distressed sales), the recent housing news is extremely encouraging. Let’s give some examples:

Spring Home Buying Season is Healthiest in 3 Years

Move, Inc. just last week revealed that this spring’s housing market finished stronger than any time in the last three years. In the report, Jonathan Smoke, chief economist for realtor.com explained:
"This is the first time, since the beginning of the recovery that we expect to see positive momentum throughout the second half of the year. While seasonal patterns are emerging in July month-to-month comparisons, all other metrics point to fundamental market health and a build-up of momentum."

Existing Home Sales are Up

In their latest Existing Home Sales Report, the National Association of Realtors (NAR) announced existing-home sales increased in July to their highest annual pace of the year. That is even though distressed property sales fell to 9%, the first time they were in the single-digits since NAR started tracking the category in October 2008. Lawrence Yun, chief economist for NAR explained:
“The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market. More people are buying homes compared to earlier in the year and this trend should continue.”

New Construction Surging

According to an article on Market Watch, new constructing is surging:
“Construction on new U.S. homes jumped 15.7% in July to the highest level in eight months and starts were revised up sharply for June, indicating a pickup in home building after an early-year lull. Housing starts climbed to an annual rate of 1.09 million last month…Economists surveyed by MarketWatch had expected starts to climb to a seasonally adjusted 975,000 in July.”

Foot Traffic at Year High Numbers

Foot traffic (the number of people out actually physically looking at homes) has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future.

The latest foot traffic numbers show that there are more prospective purchasers currently looking at homes than at any other time in the last twelve months which includes the latest spring buyers’ market.

Bottom Line

The spring market finished stronger than any time in the last three years. Home sales are at year long highs. New construction is beating estimates. There are more buyers out than at any time in the last twelve months.

We think the housing market is doing just fine.

Friday, August 22, 2014

Mortgage Rate Lock-In Phenomena

Zillow put out a great video on their YouTube channel with a panel of economists talking about a phenomena called "Mortgage Rate Lock-In" and how this can affect the housing market going forward.  Mortgage Rate Lock-In is the idea that homeowners are more reluctant to sell and move because of their low interest rate and housing payment.

One of the panelist is Lawrence Yun, Chief Economist and Senior VP of Research at the National Association of Realtors.  He has a some great points on why this phenomena most likely won't have a big impact on home sales in the future.  His main point is that less than 10% of homeowners move for cheaper housing.  About 70% of homebuyers move because of life changing events such as getting a larger size home, a new job, and/or neighborhood considerations like changing schools.

Here is the video.


Lots of great information in this video.  Lawrence Yun predicts interest rates will be above 5% in early 2015.

Tuesday, August 19, 2014

Cost of Waiting and Oregon Home Appreciation

Below is a great article by KCM Crew about the cost of waiting.  In this article they talk about home appreciation and the rise of interest rates.  Both of these factors attribute to the true cost of waiting to buy a home. 

After the article is a chart I created with data provided by CoreLogic about actual average home appreciation in Oregon since 2013.  This will help paint a better picture on home appreciation here in Oregon since we have been experiencing above average home appreciation compared to the rest of the nation. 

With Interest Rates and Home Prices on the rise, do you know the true Cost of Waiting?

Let’s say you’re 30 and your dream house costs $250,000 today, at 4.12% your monthly Mortgage Payment with Interest would be $1,210.90.

But you’re busy, you like your apartment, moving is such a hassle...You decide to wait till the end of next year to buy and all of a sudden, you’re 31, that same house is $270,000, at 5.3%. Your new payment per month is $1,499.32.

The difference in payment is $288.42 PER MONTH! 

That’s basically like taking a $10 bill and tossing it out the window EVERY DAY!

Or you could look at it this way:
  • That’s your morning coffee everyday on the way to work (average $2) with $11 left for lunch!
  • There goes Friday Sushi Night! ($72 x 4)
  • Stressed Out? How about 3 deep tissue massages with tip!
  • Need a new car? You could get a brand new $20,000 car for $288.00 per month.
Let’s look at that number annually! Over the course of your new mortgage at 5.3%, your annual additional cost would be $3,461.04!

Had your eye on a vacation in the Caribbean? How about a 2-week trip through Europe? Or maybe your new house could really use a deck for entertaining.  We could come up with 100’s of ways to spend $3,461, and we’re sure you could too!

Over the course of your 30 year loan, now at age 61, hopefully you are ready to retire soon, you would have spent an additional $103,831, all because when you were 30 you thought moving in 2014 was such a hassle or loved your apartment too much to leave yet.



Example of home appreciation in Oregon since 2013 using CoreLogic’s data.

Friday, August 15, 2014

Homeowners insurance and credit scores

Below is an article by CNBC about homeowners insurance and how it is tied to credit scores.  Homeowners insurance is required when you buy a home and is often included as part of the monthly mortgage payment along with Principal & Interest (P&I) and property taxes.  Credit scores can impact the interest rate, mortgage insurance rate (if required), and also the homeowners insurance rate a borrower receives.  Trying to improve your credit score before applying for a home loan is a great idea to keep your payments as low as possible. Here is a link to the article: How poor credit costs you on homeowners insurance


If your home sits by the ocean, atop a fire-prone canyon or even in a not-so-nice neighborhood, you probably know you're paying more for homeowners insurance, but something even closer to home may be driving your monthly payments higher: your personal credit score.

Lower credit scores are widely known to impact mortgage availability and rates, but what most home buyers don't know is that they also increase the cost of homeowners insurance.

Homeowners with poor credit pay 91 percent more for homeowners insurance than people with excellent credit, according to a new report from Bankrate.com in conjunction with insuranceQuotes.com, part of Bankrate Insurance. Homeowners with median credit pay 29 percent more than those with excellent credit.


"This is another example of why credit is such an important part of your financial life," said Laura Adams, senior analyst with insuranceQuotes.com. "Maintaining a good credit history suggests that you're a less risky customer and can lead to several hundred dollars in annual homeowner's insurance savings."
 
...
 
"There is an undeniable correlation between credit information and insurance risk," said Anna Bryant, a spokeswoman for State Farm Insurance, which does use credit scores to determine individual homeowner insurance rates. "It is a correlation in terms of the frequency a person could have a claim and the severity of their claim."


Bryant added that State Farm does not look at the entire credit score, but just aspects of it to determine someone's rate. She could not provide information as to what scores correlate to specific increases or decreases in insurance rates.
 
FICO recently announced it would be implementing a new version of its credit score this fall, one that will not penalize people for medical debt or for late payments that have already been rectified. FICO scores run on a 300-850 point scale, and for most home buyers a score above 700 is required to get the best mortgage rates.


Banks are beginning to ease credit conditions for prime borrowers. Eighteen percent of banks in the latest Federal Reserve Senior Loan Officer Survey reported loosening prime mortgage credit conditions in the second quarter of 2014. 
 
"This was the largest loosening in lending standards in the 24 year history of the data," analysts at Capital Economics noted. 
 
...It is the potential buyers on the margins, the first-time home buyers, who are being priced out of home ownership due to lower credit scores and higher debt levels. They continue to rent, despite rising rental rates, because they do not qualify on an income and asset basis for a home loan. 

Monday, August 11, 2014

The Credit Don'ts During the Loan Process

Don’t Apply for New Credit of Any Kind
Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately.  New credit also brings a credit score down.

Don’t Pay Off Collections or Charge Offs
Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent.  If you want to pay off old accounts, do it through escrow – at closing.
 
Don’t Max Out or Over Charge on Your Credit Card Accounts
Try to keep your card balances below 30% of their available limit at ALL times during the loan process.  Lenders do have the ability to re-pull your credit prior to closing.
If you need to pay down balances, make sure to consult your Mortgage Consultant first to ensure you get the most of it.

Don’t Consolidate your Debt Onto 1 or 2 Credit Cards
It seems like it would be the smart thing to do; however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and if you want to save money on credit card interest rates, wait until after closing. 

Don’t Close Accounts
If you close a credit card account, you will lose the total amount of available credit you have, and this may impact your credit scores.  Also, closing a card or installment account may impact other factors to your score such as the length of your credit history.  Do not close credit cards until after closing.

Don’t Allow Any Accounts to Run Past Due – Even 1 Day!
Most cards offer a grace period; however, what they don’t tell you is that once the due date passes, that account will show a past due amount on your credit report.  Past due balances can also drop scores by 50+ points. 

Friday, August 8, 2014

June CoreLogic Home Price Index Report

CoreLogic recently released the June Home Price Index report.  In the last year, Oregon home values are up by 9.5%.  From May to June, values increased by 1.2%.  On a $300,000 home, that equates to $3,600 of appreciation in one month!  This is great news for homeowners as values continue to rise.  According to CoreLogic, Oregon home values are still 9.3% below the dip that occurred in July of 2007.  It is still a great time to buy a home with near historical low interest rates and home values down but on the rise! 

Monday, August 4, 2014

5 Factors of Credit Scoring

The Five Factors of Credit Scoring

1. Payment History – 35% Impact

Paying debt on time and in full has the greatest positive impact on your credit score.  Late payments, judgments and charge-offs all have a negative impact.  Delinquencies that have occurred in the last two years carry more weight than older items.

2. Outstanding Credit Card Balances – 30% Impact

This factor marks the ratio between the outstanding balance and available credit.  Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit at least 2-3 months prior to trying to purchase a home.

3. Credit History – 15% Impact

This portion of the credit score indicates the length of time since a particular credit line was established.  A seasoned borrower will always be stronger in this area.

4. Type of Credit – 10% Impact

A mix of auto loans, credit cards and mortgage is more positive than a concentration of debt from credit cards only.  You should always have 1-2 open major credit card accounts.  However, getting an auto loan or new credit card right before you apply for a mortgage or during the process can hurt your credit and impact the loan amount you would have qualified for.

5. Inquiries – 10% Impact

This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a twelve-month period.  Each hard inquiry can cost from three to fifteen points on a credit score, depending on the amount of points someone has left in this factor.  Note that if you pull your credit report yourself, it will have no effect on your credit score.

Friday, August 1, 2014

Rates Move with Economic News

Mortgage interest rates were volatile this week because of mixed economic reports.  Early in the week was the GDP report which provided good news for the economy.  That news made interest rates immediately jump by 0.125%.  Today, data about job creation failed to meet it's mark which sent rates back to where they started this week.

Here is an article from CNBC about the job creation data: Rate Hike Unlikely After Jobs Data.  Below is an article by MBSQuoteline.com which covers how mortgage rates were impacted by the GDP report that was released earlier this week and the Fed continuing to taper its bond purchases.


GDP Bounces Back

The big surprise over the past week was the GDP report. The stronger-than-expected growth revealed in the GDP data was good news for the economy, but it caused mortgage rates to end the week higher. 

Gross Domestic Product (GDP), the broadest measure of economic growth, increased at a 4.0% rate during the second quarter of this year. Economists had expected an increase of just 3.0%. After revisions, the negative results for the first quarter were not as bad as previously reported, going from -2.9% to -2.1%. Consumer Spending, which covers about 70% of the economy, bounced back strongly from the weather-related weakness seen during the first quarter. The consensus forecast currently is for GDP growth of roughly 3.0% for the rest of the year. 


The Fed statement released this week indicated that the Fed will continue to taper its bond purchases at the previously announced pace. It will cut its purchases of new Mortgage-Backed Securities (MBS) from $15 billion to $10 billion per month. In the statement, Fed officials noted continued improvement in the labor market, but they also pointed out that much under-utilization remains. In addition, Fed officials said that inflation measures have risen a little closer to their targets, and they expect future inflation levels to remain stable. All in all, the statement contained some hawkish elements and some dovish elements, and it produced little market reaction.